Exercise 1

Fried rice is an inferior good for Mark. Let suppose that Mark's income has just increased by $10,000 per year

(a) What is the effect of income on demand ?

Exercise 2

The following graph represents the U.S. market for corn. If we estimate the world price of corn at $12 per bag and assuming that the U.S. can buy all the corn that it wants at that price. The U.S. government decides to place a tax on imported corn of $2 per bag.

(a) What will happen to the amount of corn the U.S. imports?

Exercise 3

Information about a small tape recorder on the market is shown in the following table:

Price in Dollar Quantity Demand

50 40000

100 35000

150 30000

200 25000

250 20000

300 15000

(a). Compare and discuss the two elasticity.

(b). What will be the expectation regarding the value of the elasticity as the price continues to fall? Assume a linear demand curve.

Exercise 4

Allen is a college student who works part-time and earns $100 per week. He spends his entire income on two goods: Chinese food and bottles of juice. The price of Chinese food is $10, and a bottle of juice is $2.

(a). What is the opportunity cost of Chinese food? What is the opportunity cost of a bottle of juice?