Problem 1 Sometimes you see in advertisements statements like \"... only 3 units remain in stock. . .\" or, as in bookingcom. \"only 4 rooms left at this price...\" and similar statements. Which effect do you think this has, if at all? Is it an effect on the supply side of the market (producers) or the demand side (consumers)? If the effect materializes, is it going to be a movement along the (supply or demand?) curve, or is it a shift of the respective curve (and, if so, is it rightward or leftward shift). Given your answers above, draw basic upward-sloping supply and downward-sloping demand curves (in the Q-P space), and illustrate the movements that you predicted above (if any), and state your prediction about possible changes in the price and quantity of the good or service that is being advertised. Problem 2 Gordon Moore, Intel co-founder, once claimed that the number of transistors that can be t on an integrated circuit (chip) doubles every two years. That statement from the 19605 appears to have been approximately true since. It became known as the \"Moore's Law.\" This would simply mean that, with time, it becomes progressively cheaper to produce computers of a given capability. a. Do you think Moore's law will explain a shift in the supply or the demand curve for computers? Which curve would shift, if at all? Comparing the initial equilibrium with the equilibrium after the passage of time (when Moore's law' 5 effects materialize), what can you say about the quantity of computers sold and their prices (will they increase or decrease)? Does it agree with what you observe in real life? b. Now, in addition to the above effect, over these years computers became more essential in people's lives (more uses were developed, increasing their productivity at what they can do with computers, beside an increase in computer literacy). This implies a shift in the demand curve. Replicate the above graph, and show in it this additional shift in the demand curve. Comment on the predicted changes in quantity and price of computers. Problem 3 There are two goods, A and B. The demand function of A is given by: of} = 125 1011*, + 2P3 + 5: Where I is income, PA is the price of A, and P3 is the price of B. a. b. Explain in words the concept of a normal good and the concept of an inferior good. From the given demand function, is A a normal good or an inferior good? Explain in words what a demand substitute (or gross substitute) is and what a demand complement (gross complement) is. From the given demand function, are the products A and B demand substitutes or demand complements? What is the expression of the cross-price elasticity of the demand for A with respect to the price of B (in terms of PA, PB, and I)? What is the value of the cross-price elasticity when: 1-",l = 10, P3 = 5,1 = 5? Problem 4 The demand function for pizza is given by Q\" = 50 2P + a1, where a is a parameter, and I stands for income. Assume thata =4andl= 100: a. What would be the quantity demanded when the price is $10? What is the choke price? What is the price-elasticity of demand when the price increases from $8 to $12? [I-Iint: calculate the demand at each price, then use the changes in quantity and price between the two points, A0 and AP, in the elasticity formula: 2: X 3.] Is pizza a normal good or an inferior good? How do we know? What is the income-elasticity of demand (in general P and I terms, and when P = $10 and I = $10 0)? Assume thata = 1andl = 10: d. e. Is pizza a normal good or an inferior good? How do we know? If the supply curve of pizza is given by: 05 = 3P 5, what would be the equilibrium price and quantity of pizza in this market? At the equilibrium point found above, what is the price-elasticity of demand? What is the price-elasticity of supply? Which curve is more (price) elastic? Problem 5 If the elasticity of demand for m&m is (}.6, and the price increases by 10%, would the expenditures, or the total revenue for producers (P x Q), increase or decrease
