Assignment #3 - Questions Question 1 - 25% A hypothetical demand schedule for comic books in a small town is provided below. Price Quantity Demanded $11 9 7 5 3 1 Total Expenditure Percent Change in Price Percent Change in Quantity Demanded Elasticity of Demand 1 3 5 7 9 11 a. Fill in the table and calculate the price elasticity of demand over each price range. Be sure to use average prices and quantities when computing the percentage changes. b. Plot the demand curve and show the elasticities over the different ranges of the curve. c. Explain why demand is more elastic at the higher prices. Question 2 - 25% Suppose the market for frozen orange juice is in equilibrium at a price of $2.00 per can and a quantity of 4200 cans per month. Now suppose that at a price of $3.00 per can, quantity demanded falls to 3000 cans per month and quantity supplied increases to 4500 cans per month. a. Draw the appropriate diagram for this market. b. Calculate the price elasticity of demand for frozen orange juice between the prices of $2.00 and $3.00. Is the demand elastic or inelastic? c. Calculate the elasticity of supply for frozen orange juice between the prices of $2.00 and $3.00. Is the supply elastic or inelastic? d. Explain in general what factors would affect the elasticity of demand for frozen orange juice. e. Explain in general what factors would affect the elasticity of supply of frozen orange juice. Question 3 - 25% What would you predict about the relative price elasticity of demand for each of the following items? Explain your reasoning. a. b. c. d. e. food vegetables leafy vegetables leafy vegetables sold at your local supermarket leafy vegetables sold at your local supermarket on Wednesdays Question 4 - 25% Consider the market for rental housing in Yourtown. The demand and supply schedules for rental housing are given in the table. Price ($ per month) 1100 1000 900 800 700 600 500 Quantity Demanded (thousands of units) 40 50 60 70 80 90 100 Quantity Supplied (thousands of units) 80 77 73 70 67 65 60 a. In a Free market for rental housing, what is the equilibrium price and quantity? b. Now suppose the government in Yourtown decides to impose a ceiling on the monthly rental price. What is the highest level at which such a ceiling could be set in order to have any effect on the marker? Explain your answer. c. Suppose the maximum rental price is set equal to $500 per month. Describe the effect on quantity demanded, supplied, and exchanged in the rental-housing market. d. Suppose a black market develops in the presence of the rent controls in part (c). What is the black market price that would exist if all of the quantity supplied were sold on the black market