Question

1.Given: Suppose you are given the following market demand function for apples: QD = 100*I + 2*PSub − P where P is the price per unit of apples, I is consumer income and PSub is the price per unit of grapes (a substitute for apples). And given the market supply function for apples: QS = P − 2*w − 4*m where P is the price per unit of apples, w is the hourly wage rate the firm pays to workers and m is the price of materials used to grow apples.

Suppose, as a baseline, I = .5, PSub = 5, w = 5 and m = 5. Find the equilibrium price of apples?

A. 45

B. 50

C. 65

D. 70

2. Given: Suppose you are given the following market demand function for apples: QD = 100*I + 2*PSub − P where P is the price per unit of apples, I is consumer income and PSub is the price per unit of grapes (a substitute for apples). And given the market supply function for apples: QS = P − 2*w − 4*m where P is the price per unit of apples, w is the hourly wage rate the firm pays to workers and m is the price of materials used to grow apples.

Suppose, as a baseline, I = .5, PSub = 5, w = 5 and m = 5. Find the equilibrium quantity of apples?

A. 5

B. 15

C. 20

D. 25

3. Given: Suppose you are given the following market demand function for apples: QD = 100*I + 2*PSub − P where P is the price per unit of apples, I is consumer income and PSub is the price per unit of grapes (a substitute for apples). And given the market supply function for apples: QS = P − 2*w − 4*m where P is the price per unit of apples, w is the hourly wage rate the firm pays to workers and m is the price of materials used to grow apples.

Suppose, as a new event, I = 1, but everything else is unchanged (so PSub = 5, w = 5 and m = 5). Find the new equilibrium price of apples?

A. 45

B. 50

C. 65

D. 70

4. Given: Suppose you are given the following market demand function for apples: QD = 100*I + 2*PSub − P where P is the price per unit of apples, I is consumer income and PSub is the price per unit of grapes (a substitute for apples). And given the market supply function for apples: QS = P − 2*w − 4*m where P is the price per unit of apples, w is the hourly wage rate the firm pays to workers and m is the price of materials used to grow apples.

Suppose, as a new event, I = 1, but everything else is unchanged (so PSub = 5, w = 5 and m = 5). Find the new equilibrium quantity of apples?

A. 30

B. 35

C. 40

D. 45

5. Given: Suppose you are given the following market demand function for apples: QD = 100*I + 2*PSub − P where P is the price per unit of apples, I is consumer income and PSub is the price per unit of grapes (a substitute for apples). And given the market supply function for apples: QS = P − 2*w − 4*m where P is the price per unit of apples, w is the hourly wage rate the firm pays to workers and m is the price of materials used to grow apples.

Recall the following:

• Baseline Conditions: I = .5, PSub = 5, w = 5 and m = 5.

• New Conditions: I = 1, but everything else is unchanged (so PSub = 5, w = 5 and m = 5).

Comparing the new equilibrium versus the baseline equilibrium, explain economically what happened?

A. Consumer income decreased, causing demand to increase which increased both the equilibrium price and equilibrium quantity.

B. Consumer income increased, causing supply to decrease which increased both the equilibrium price and equilibrium quantity.

C. Consumer income increased, causing demand to decrease which decreased both the equilibrium price and equilibrium quantity.

D. Consumer income increased, causing demand to increase which increased both the equilibrium price and equilibrium quantity.

Answer 1

Baseline I=0.5 P sub=5 W=5 m=5

Q(D)=100*I+2*P sub —P

100*0.5+2*5— P =60—P

Q(S)=P—2w—4m =P—2*5—4*5 =P—30

Now at Market equilibrium ; Q(D) =Q(S)

60—P=P—30 or 90—2P=0

P=90/2=45............ ANSWER OF 1ST QUESTION.

Now equilibrium quantity (put equilibrium price =45 in demand or supply function)

Equilibrium quantity =P—30=45—30=15 ANSWER OF 2ND QUESTION.

Now baseline is changed ; I=1 P sub =5 w=5 m=5  

Now Demand Function with new baseline

Q(D) = 100*1+2*5—P =110—P

Q(S) = P—30 (w and m unchanged.

New market equilibrium ; 110—P=P—30=140—2P= 0

P=140/2=70...... ANSWER OF 3RD QUESTION.

Equilibrium quantity =P—30=70—30=40........ANSWER OF 4th QUESTION

5:— ANS:-D

Answer at a glance

1.........A

2..........B

3..........D

4..........C

5..........D