6:201 Back Prof. Propheter Points possible: 30 Homework2.docx Note: You must show all of your work and your writing must be legible for full credit. You must submit your assignment electronically. Plagiarized answers will receive zero points. More than one plagiarized answer will result in a zero for the assignment. 1. Describe the difference between demand and quantity demanded. [2 points] 2. You can do two things with your time: earn wages or not. Suppose you receive a raise from $13 per hour to $15 per hour. Further suppose that not working is a normal good. Describe your incentives to work more or less because of the raise using the concepts of the income and substitution effects. Do not provide any graphs for your answer. [5 points] 3. The day after Hurricane Katrina struck New Orleans, the price of gas had doubled in many parts of the area, leading to cries of price gouging and gas station owners taking advantage of people in a time of need. Bottled drinking water prices had also spiked. [4 points] (a) Using a supply and demand graph for illustration, explain why higher local prices for goods such as gas or bottled water should be expected in a market economy after disasters strike. [Note: It is of course still possible that some excessive price increases may have occurred.] (b) Describe one private solution and one government solution that could avert such price spikes. Describe the tradeoffs of these solutions. 4. Given the following supply and demand schedules: (a) find the equilibrium market price and quantity, and (b) find the new short-run competitive market equilibrium when each unit costs $5 more to produce. [4 points] unit QDQs Price per $45 0.5 27 $40 1 24 $35 1.521 $30 218 $25 2.5 15 3 Dashboard Calendar To Do Notifications Inbox 6:20 Back Homework2.docx 4. Given the following supply and demand schedules: (a) find the equilibrium market price and quantity, and (b) find the new short-run competitive market equilibrium when each unit costs $5 more to produce. [4 points] Price per unit QpQs $45 0.5 27 $40 124 $35 1.5 21 $30 2 18 $25 2.5 15 5. Given the demand function, calculate to two decimal places: (a) the point price elasticity at P = $30 given a price change from $20, (b) the point price elasticity at P = $20 given a price change from $30, (c) the arc price elasticity from $20 to $30, and (d) calculate the change in total revenue as a result in a decrease in price from $30 to $20. For part d, explain the result. [6 points] 6. Suppose you are at a farmer's market and two adjacent vegetable vendors are selling identical zucchinis. Explain what might happen if one farmer increased the price of their zucchinis and all other things in the world remained the same. Be sure to include in your response a conjecture about the type of demand for zucchinis that is suggested. [3 points] 7. Suppose that your quantity demanded for dates was 10 dates per month when you pay for the entirety of the date. Suppose further that you have decided to split the cost with your dates. [Assume this has no effect on the number of dates supplied by the market.] (a) Describe what happens to your demand for dates, if anything. Be sure to discuss any assumptions you make about demand or dates as a good. (b) If your price elasticity of demand for dates was -1.1, what is your new quantity demanded? For simplicity, use the point price elasticity method. [6 points] 2 3 Dashboard Calendar To Do Notifications Inbox