Answer all parts of the questions

Question 1 is reprinted for your convenience. 1. Steverail, the only provider of train service operating between two cities, is currently incurring economic losses. (a) Using a correctly labeled graph, show each of the following. (i) Steverail's loss-minimizing price and quantity, labeled Pm and Qm, respectively (ii) The area of economic losses, shaded completely (iii) The allocation efficient quantity, labeled Q (b) If Steverail raised the price above Pm identified in part (a)(i), would total revenue increase, decrease, or not change? Explain. (c) Assume a per-unit subsidy is provided to Steverail. (i) Will Steverail's quantity increase, decrease, or not change? Explain. (ii) Will consumer surplus increase, decrease, or not change? (d) Assume instead that a lump-sum subsidy is provided to Steverail. For the short run, answer the following. (i) Will the deadweight loss increase, decrease, or not change? Explain. (ii) Will Steverail's economic losses increase, decrease, or not change?2. Theresa consumes both bagels and toy cars. Quantity of Marginal Utility Quantity of Marginal Utility from Bagels from Bagels (utils) Toy Cars Toy Cars (utils) 1 8 1 10 2 6 3 6 4 5 4 4 4 5 3 6 6 (a) The table above shows Theresa's marginal utility from bagels and toy cars. (i) What is her total utility from purchasing three toy cars? (ii) Theresa's weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa's utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. (b) Assume that the price of wheat, an input for the production of bagels, increases. Will Theresa's demand for bagels increase, decrease, or not change? Explain. (c) Suppose that Theresa's income elasticity for bagels is -0.2. Does the value of Theresa's income elasticity indicate that bagels are normal goods, inferior goods, substitutes, or complements? (d) Suppose that when the price of toy cars increases by 10 percent, Theresa buys 5 percent fewer toy cars and 4 percent less of a different toy, blocks. Calculate the cross-price elasticity for toy cars and blocks and indicate if it is positive or negative.3. Sugar is freely traded in the world market. Assume that a country, Loriland, is a price taker in the world market for sugar. Some of the sugar consumed in Loriland is produced domestically while the rest is imported. The world price of sugar is $2 per pound. The graph below shows Loriland's sugar market, and Pw represents the world price. $ PRICE Domestic Supply $8 $6 $5 $4 $2 Pw Domestic Demand 2 6 10 14 MILLIONS OF POUNDS (a) At the world price of $2 per pound, how much sugar is Loriland importing? (b) Suppose that Loriland imposes a per-unit tariff on sugar imports and the new domestic price including the tariff is $4. (i) Identify the new level of domestic production. (ii) Calculate the domestic consumer surplus for Loriland. You must show your work. (iii) Calculate the total tariff revenue collected by the government. You must show your work. (c) Given the world price of $2, what per-unit tariff maximizes the sum of Loriland's domestic consumer surplus and producer surplus?Problem 1. Demand Bengt's utility function is U(xy xz)= x, + In Xz X1 - stamps X2 - beer Bengts budget p1 x1 + Pz X2 = m P1 - price of stamps P2 - price of beer m - Bengt's budget a) What is Bengt's demand for beer and stamps? b) Is it true that Bengt would spend every krona in additional income on stamps? c) What happens to demand when Bengt's income changes (i.e. find the income elasticity)? d) What happens to demand when p, and pz increase (i.e. find the price elasticities)? Problem 2. Demand Jan has fallen on hard times. His income per week is 400 kr, spending 200 kr on food and 200 kr on all other goods. However, he is also receiving a social allowance in the form of 10 food stamps per week. The coupons can be exchanged for 10 kr worth of food, and he only has to pay 5 kr for such coupons. Show the budget line with and without the food stamps. If Jan has homothetic preferences, how much more food will he buy when he receives the food stamps? Problem 3. Demand Find the demand functions for the individuals below, the budget constraint is pix+py=m Bill: U(x ,x ) =x y 2/5 3/5 Buster: U(x, y)=x y Ben: U(x, y) = (x+1) (y+2) Barbara: U(x ,x ) =3x +2y Beth: U(x, y)=min{x , v}