There are 40 people living in a village each having preference over apples and shirts represented by U(a,b) = a1/3s2/3, where a and s are amount of apples in pounds and shirts consumed, respectively. The price of a shirt is $10. Each 2 villager has $300 income. Apples are supplied to the village by a farmer, whose supply function is S(pa) = 1000pa.

There are 40 people living in a village each having preference over apples and shirts represented by U(a,b)=a1/3s2/3, where a and s are amount of apples in pounds and shirts consumed, respectively. The price of a shirt is $10. Each villager has $300 income. Apples are supplied to the village by a farmer, whose supply function is S(pa)=1000pa. Question 4 Part a1 What is the equilibrium price of apples? How many pounds of apples does each villager consume? Question 4 Part a2 What is the aggregate net consumer surplus at the equilibrium? Question 4 Part a3 What is the price elasticity of demand at the equilibrium? Question 4 Part b1 Suppose 50 more people move in to the village. What is the equilibrium price now? Question 4 Part b2 Are consumers better or worse off now? Why? If a consumer is worse off, by how much additional income he/she needs to be compensated in order to be as well off as in Part a