Question
1). As a consequence of Covid-19 crises, a big reduction has happened in both demand and supply side of the market for restaurant meals. (b)Suppose
1). As a consequence of Covid-19 crises, a big reduction has happened in both demand and supply side of the market for restaurant meals.
(b)Suppose before the Covid-19 the quantity demanded and quantity supplied were expressed mathematically as QD= 122-3P and QS= P-14, where P is the price per restaurant meal.The new demand curve after Covid-19 is QD=120-3P and new supply curve is QS= P-28. If the government sets a price ceiling equal to the previous price (the old equilibrium price), is this policy binding? What will be the consumer surplus after the policy? Are consumers better off with the price ceiling? Are producers better off with the price ceiling? How much of total surplus will be lost with the price ceiling?
2) Markets of two goods X and Y have only two consumers:Esther and Abhijit. Assume prices are jQuery224011492451092821476_1602863494173 and ??. Esther's income is $120 and her preferences are represented by the following utility function U?=??1/3??2/3 Abhijit's income is also $120 and his preferences are represented by the following utility function U?=??2/3??1/3
(a)Would the following utility functions (?1and ?2) still represent Esther's preferences? Explain why or why not? ?1=2ln(?)4ln(?)U2=X?2
(b)Would bundles of (X=2 and Y=2) and (X=2and Y=4) be on the same Esther's indifference curve?Is the "more is better" assumption satisfied for both X and Y?Why or why not?
(c)Is the "Esther likes variety" assumption satisfied?Why or why not?
(d)Compute Esther's and Abhijit's demand equations for X and Y. (Hint: You should solve this question for the general case, however if you solve it for certain values of ?? and ??, e.g., when ??=4 and ??=2, you will get some scores for this part.)
(e)Compute the market demand for X.
(f)Draw the income expansion path for Esther. Are both X and Y normal good for her?
(g)Are X and Y substitutes or complements for Abhijit? Why?(Hint: you do not have to calculate elasticities, though it is okay if you do.)
(h)What are optimal bundles of X and Y for Esther and Abhijit if ??=4 and ??=2?
(i)Find the substitution effects and income effects on Abhijit's demand if ?? decreases from $4 to $2(assume ??=2).
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