Q1: The estimated demand and supply functions for avocados is:

= 104 40 + 4

= 10 80

where

- QD and QS are quantity demanded and supplied, respectively (in million kilograms)

- p is the price of avocado per kg in US dollar

- pt is the price of tomato per kg in US dollar.

a) Suppose that pt = $4 per kg. Calculate the impact of unit change in price on quantity supplied. Explain

your result.

b) Suppose that pt = $4 per kg. Calculate the impact of unit change in price on quantity demanded. Explain

your result.

c) Suppose that pt = $4 per kg. Calculate the necessary change in price that we should have for a unit

change in quantity supplied. Explain your result.

d) Suppose that pt = $4 per kg. Calculate the necessary change in price that we should have for a unit

change in quantity demanded. Explain your result.

e) Suppose that pt = $4 per kg. What is the market equilibrium price and quantity?

f) Using supply and demand curves show the equilibrium point on a diagram? Show precisely the values

on the Q and P intercepts. Would there be any equilibrium in the market for avocados? Explain.

g) Suppose now that pt = $6.25 per kg. Show the new equilibrium price and quantity on a diagram of old

and new supply and demand curves presenting how the curves shifting. Explain what type of shift this

change causes?

h) Suppose that due to some substantial changes in consumer preferences and supply dynamics the

estimated demand and supply functions for avocados have become as the followings::

= 204 40 + 4

= 30 60Name:

Further suppose that pt = $4 per kg. Calculate the new equilibrium price and quantity and show it on a

diagram.

i) Suppose that pt = $4 per kg. Calculate the amount of suplus/shortage for the following scenarios

Scenario 1: Price of avocado: p= $4.50

Scenario 2: Price of avocado: p= $3.00

where

= 204 40 + 4

= 30 60 .