Question

1. Consider the following supply equation: p = 5 + 10q Suppose that the market price is p∗ = 25. Calculate the producer surplus. Please show your work.

2. Consider the following demand equation: p = 600 − 4q Suppose that the market price is p∗ = 120. Calculate the consumer surplus. Please show your work.

3. Working full time and going to university are typically substitutes. When it is tough to find a job, does that raise the opportunity cost of going to university, or does it lower it? When it is tough to find a job, does the demand for a university education rise or fall? Use a diagram to explain.

4. In 2017, the Government of Ontario enacted a foreign buyers tax of 15% on nonCanadians wishing to purchase Toronto real estate. What effect do you expect this has on demand for Toronto real estate? Use a diagram to explain.

5. Assume that a farmer can use his land to grow either coffee or cocaine. Suppose that cocaine prices fall. What should happen to the supply for coffee? Use a diagram to explain.

Answer 1