Question

17. Using data from Housing Assistance Supply Experiment (HASE) sites, John Mulford of Rand Research estimates the long-run "permanent" income elasticity of housing expenditures to be 0.45 for owners. Using this information, what is likely to happen to housing expenditures if the government increases income transfers to recipients in HASE sites? a. Housing expenditures will increase significantly b. Housing expenditures in HASE sites will fall significantly as recipients move out of these areas to higher-income areas. c. Housing expenditures will increase, but not significantly. d. Housing expenditures will decrease by an insignificant amount 18. This figure shows demand for firms with market power in Market A and Market B. Suppose that the marginal cost of production of every unit rises from $20 to $40 in both markets. How much does the profit-maximizing price increase by? Price (S) Price (S) Market A Market B 50 МС МС MR MR D D 500 500 Quantity Quantity a. The profit-maximizing price increases by $10 in Market A and Market B b. The profit-maximizing price increases by $20 in Market A and Market B. c. The profit-maximizing price increases by $20 in Market A and increases by $10 in Market B d. The profit-maximizing price increases by $10 in Market A and increases by $20 in Market B 50

Answer 1

17) the income elasticity is positive 0.45. this implies that for a 1% increase in income, the increase in household expenditure will only be 0.45%. this is not a significant increase in terms of percentage because income elasticity is less than 1. Hence option C is correct

18) in market A, using the marginal revenue = marginal cost rule, the price increases from 50 to 60 and in market B the price is increased from 40 to 50. Hence price is increased by $10 in both the market. Select option A