Microeconomics

Question 1. Consider the markets for tea, coffee, and sugar. a. For each pair, identify and explain whether they are complements or substitutes: Tea and coffee Tea and sugar Coffee and sugar b. Suppose a hurricane in the area damages coffee shrubs. Draw a demand supply diagram to show what happens in the market for coffee. Explain. What will happen to the equilibrium price and quantity of coffee? c. Draw a separate demand supply diagram to show how the change in the market for coffee affects the market for tea. Explain. What will happen to the equilibrium price and quantity of tea? d. Draw a separate demand supply diagram to show how the change in the market for coffee affects the market for sugar. Explain. What will happen to the equilibrium price and quantity of sugar? Question 2. The US Department of Agriculture is interested in analyzing the domestic market for corn. The USDA's staff economists estimate the following equations for the demand and supply curves: Qd=1,600-125P Q3=440+165P Quantities are measured in millions of bushels; prices are measured in dollars per bushel. a. Calculate the equilibrium price and quantity that will prevail under a completely free market. b. Calculate the price elasticities of supply and demand at the equilibrium values. c. The government currently has a $4.5 bushel support price in place. What impact will this support price have on the market? Will the government he forced to purchase corn under a program that requires them to buy up any surpluses? If so, how much? Question 3. In a city with medium sized population, the equilibrium price for a city bus ticket is $1.00, and the number of riders each day is 10,800. The short-run elasticity of demand is -0.60, and the short-run elasticity of supply is 1.0. Estimate the short-run linear supply and demand curves for bus ticket. Question 4. Demand and supply schedules for Pizza market is given below. Price $ uantit demanded uantit su lied 5 160 l 3 0 6 150 140 7 140 l 5 0 8 130 160 a. What is the arc price elasticity of demand when price of pizza increases from $7 to $8? Is it elastic, inelastic or unit elastic