Questions 27 and 28 are connected.

27. These questions were motivated by the articles about the U.S. government's raisin program designed to regulate the price of raisins. Assume the demand for raisins is estimated by the demand function QD = [a + c I] / Pb. The constant a = 80,000,000, the coefficient c=25, and the superscript b=1.1. "I" represents average household income, which is $60,000. In any growing season, the supply of raisins, measured in thousands of tons, depends on the amount of acreage devoted to the crop, the weather, and other factors such as crop disease and insect infestations. Assume this year the annual production of raisins is forecast to be 370,000 metric tons. Production from 2018 is shown in the table below for your information. Assume the U.S. does not import or export raisins or change its inventory level. With no government interference in the market, the equilibrium price for a ton of raisins would be:

a.

$191

b.

$1,102

c.

$1,608

d.

$2,220

e.

$4,798

28. If the government's target price is $2400 per ton, what percentage of the production must the government confiscate?

a.

8.09%

b.

19.96%

c.

44.78%

d.

49.25%

e.

57.52%

Top Raisin Producing Countries

Rank

Country

Annual Raisin Production

[in Metric Tons]

1

Turkey

353,167

2

United States

332,760

3

Iran

122,595

4

Greece

72,861

5

Chile

51,128

6

South Africa

37,049

7

Uzbekistan

32,893

8

Afghanistan

30,281

9

Australia

26,041

10

Argentina

19,543

29. The following is from an article in the "Overheard" section in the Wall Street Journal:

"Hi, I'm a Mac."

"And I'm a PC."

"I like to stay in those posh hotels with free coffee and 700-threadcount sheets."

"I like to stay at Motel 6."

That is the latest revelation about the great computing divide, courtesy of Orbitz Worldwide CEO Barney Harford. Touting his company's ability to differentiate itself by slicing and dicing customer data; he let on that those booking hotel rooms using Apple computers pay on average $20 more a night. The explanation could be simple: Anyone who pays a 50% or so premium for a MAC has more money to begin with. Either that or they are the ideal consumer - the type who pays through the nose for a brand.

a. All else equal, the data could suggest the demand for Mac computers has higher income elasticity than the demand for PCs.

b. When the author writes MAC buyers will "pay through the nose for a brand", he/she assumes the computers are close or perfect substitutes.

c. If consumers will "pay through the nose for a brand", the demand curve for branded products should be relatively inelastic compared to non-branded products.

d. All of the above answers are correct.

e. Only answers a. and b. are correct.