Q2List and describe three non-price determinants of Supply. Include examples of how a change in each determinant would impact Market Supply. For each example, state whether Market Supply would shift to the right or to the left given the stated change in the determinant.

Imagine that the market for vanilla extract is in equilibrium. Then suppose there is a weather event which destroys a significant portion of the existing vanilla plants. What effect would this have on equilibrium price and quantity of vanilla extract? Explain in detail. Now imagine that simultaneously there is also a change in consumer preferences such that vanilla extract loses some of it popularity due to a new flavoring entering the market. Explain in detail what the combined effect of these two developments might be on the equilibrium price and quantity of vanilla extract.

Explain in detail the Law of Demand and the Law of Supply, and what the graphical representations of Market Demand and Market Supply would look like in accordance with these laws. Is the slope of Market Demand negative (downward) or positive? Explain in detail. Is the slope of Market Supply negative (downward) or positive? Explain in detail

A large life office has 1,000 policyholders, each of whom has a probability of 0.01 of dying during the next year (independently of all other policyholders). (i) Derive a recursive relationship for the binomial distribution of the form: P(X =x) =kg(x)P(X =x-1) where k is a constant and g(x) is a function of x . [2] (ii) Calculate the probabilities of the following events: (a) there will be no deaths during the year (b) there will be more than two deaths during the year (c) there will be exactly twenty deaths during the year. [3] [Total 5] On a portfolio of insurance policies, the claim size, Y is assumed to depend on the age of the policyholder, X . Suppose that the conditional mean and variance of Y are: E(Y | X =x)=2x+400 var(Y [ X = x) =- 2 The distribution of X over the portfolio is assumed to be normal with mean 50 and standard deviation 14. Calculate the unconditional mean and standard deviation of Y . [5] (i) For a pair of jointly distributed random variables X and Y , derive the result: var(X + Y) = var(X) + var(Y) +2cov(X, Y) [2] (ii) The random variables X and Y are jointly distributed with standard deviations of 5 and 7 respectively and corr(X, Y)=-3/7. Calculate the standard deviation of 3X -2Y +5. [3] [Total 5]