a) You are told the market for hot dogs is currently in equilibrium. What does it mean exactly? Please explain.

Also explain how the market is fundamentally a method of allocation of resources and how it creates surplus and efficiency.

b) Imagine now that the cost of beef (a major ingredients of hot dogs) decreases. What will happen to the market for hot dogs? How about the market for pizzas, a substitute to hot dogs? Explain carefully. For full mark, you need to explain what will happen to the demand, supply, price, etc. Don't simply say "it'll increase" without a justification.

c) In a graph, represent what happened in part b) in the markets for hot dogs and pizzas. Then, use the graph to argue whether the consumers of hot dogs are better or worse off after the change. Do the same for the suppliers of pizzas.

Note: draw the graph by hand on a piece of paper and attach it to this question.

a) The equation for the demand of cars is P=500-10Q.

Are you surprised to see a negative relationship between price and quantity demanded? Explain. Additionally, which number in the equation would you change if the income of the consumer increased? Would you increase or decrease that number?

b) What is the price-elasticity of the demand at P=$400? And at Q=25? [Reminder: the equation is P=500-10Q].

Without doing the calculations, what is the quantity of cars that maximizes total expenditure? Explain.

c) Shouldn't the elasticity be constant along the demand curve? After all, the equation in part a) [reminder: P=500-10Q] is linear, so why did you find two different numbers in part b)? Can you provide an explanation?