ayrdapr N ILYIEY Applied Microeconomic Theory: Module 1 Homework (A Review of Supply and Demand) 1. The U.S. demand for handmade snuffboxes is characterized by the function: Q= 1,100 - 50p and market supply is defined by: Q:= 100p - 1,000 (a) Calculate the current market equilibrium price and quantity, and illustrate this equilibrium on a graph. (b] Now suppose the government imposes a $3.00 tax on snuffboxes. How would this change the market equilibrium? (c) How would this burden be shared between snuffbox buyers and sellers? Explain how this burden is determined by the relative elasticities of supply and demand? (d) How much tax revenue is collected under the tax? How is this tax revenue a function of the elasticities of supply and demand? 2. Suppose that the demand function for bagels is expressed as the following: B=90-20Pb + 5 Pr-5 Pcc + 0.1Inc, where B = quantity of bagels, Pb = the price of bagels, Pr = the price of tortillas, Pcc = the price of cream cheese, and Inc = income. (a) Are bagels and tortillas substitutes or complements? (b) Are bagels normal or inferior goods? (c) Ifthe price of bagels is $2, the price of tortillas is $1, the price of cream cheese is 21, and income is $750, what is * the (own) price elasticity of demand for bagels? * the cross-price elasticity of demand for bagels (with respect to a change in price of cream cheese)? * the income elasticity of demand for bagels