Professional Assignment #1

CLO #1 - Describe how goals, constraints, incentives, and market rivalry affect economic decisions.

CLO #2 - Analyze demand, supply, equilibrium prices, and price elasticities as a quantitative tool to forecast changes in revenues.

Using the graph below, develop a 2- to 4-page response

Question 1

What is the maximum amount you would pay for an asset that generates an income of $250,000 at the end of each of five years if the opportunity cost of using funds is 8 percent?

Question 2

Suppose the supply function for product X is given by Qxs = 30 + 2Px 4Pz. (LO1)

• How much of product X is produced when Px = $600 and Pz = $60?

• How much of product X is produced when Px = $80 and Pz = $60?

• Suppose Pz = $60. Determine the supply function and inverse supply function for good X. Graph the inverse supply function.

Question 3

Suppose the own price elasticity of demand for good X is 5, its income elasticity is 1, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is 3.

Determine how much the consumption of this good will change if:

• The price of good X decreases by 6 percent.

• The price of good Y increases by 7 percent.

• Advertising decreases by 2 percent.

• Income increases by 3 percent.

Question 4

• A consumer is in equilibrium at point A in the accompanying figure. The price of good X is $5.

• What is the price of good Y?

• What is the consumers income?

• At point A, how many units of good X does the consumer purchase?

• Suppose the budget line changes so that the consumer achieves a new equilibrium at point B. What change in the economic environment led to this new equilibrium? Is the consumer better off or worse off as a result of the price change?