TOTAL 14 QUESTIONS (These questions are my university's last year questions. I just wanna practice how to solve the questions.)

Problem 1: Budget Constraints

Suppose that we are in a (nightmarish) world where there are two products: (i) skateboards and

(ii) hamburgers. The price of a hamburger is $5 each and the price of a skateboard is $40 each.

You have an income of $480 to spend on these products.

1. Draw the budget constraint for this problem. For full credit, be sure to label the y-intercept

and x-intercept. Draw this with hamburgers on the x-axis and skateboards on the y-axis.

What is the slope of this budget constraint?

2. Suppose that there are three possible consumption bundles you are considering. For each

of the three bundles, plot it in your budget constraint figure from part 1, and answer is it

attainable. How do you know? (Show it mathematically)

2.1. Bundle 1: 30 hamburgers and 5 skateboards.

2.2. Bundle 2: 50 hamburgers and 8 skateboards.

2.3. Bundle 3: 40 hamburgers and 8 skateboards

Now suppose that there is a breakthrough in skateboard technology, and the price of

skateboards drops from $40 to $30

3. Show how this price change shifts the budget constraint. Again, for full credit, be sure to

label the y-intercept and x-intercept and draw this with hamburgers on the x-axis and

skateboards on the y-axis. What is the slope of this budget constraint?

4. Are any of the previously unattainable points now attainable? How do you know? Show

your work.

Finally, suppose now that the price of skateboards remains at $40 instead, but it is now "burger

week", and a quantity discount is introduced for hamburgers. If you purchase 40 hamburgers,

then the price of any further hamburgers after the first 40 will drop to $4 instead.

5. Draw this new kinked budget line with this quantity discount in place. Again, for full credit,

be sure to label the y-intercept and x-intercept and draw this with hamburgers on the x-axis

and skateboards on the y-axis. Label the point where this kink occurs. What is the slope of

the budget line in each of the sections on either side of the kink? Show your work.

Problem 2: Supply and Demand

The sellers for bicycles note that if the price reaches as low as $80, they will not be able to

supply any bicycles for the market. However, once the price rises above $80, they will provide 5

bicycles for each $20 increase in the price

6. Write down the equation for the supply curve in the form of Q = a + b*p. Where a & b are

the numbers that define the supply curve (note that they may be negative). Show your

work.

Similarly, in this local market, people really do like bicycles. Their enjoyment for bicycles does

have limits however, and once the price reaches $260, nobody will buy any bicycles any more.

The bicycle industry did do a consumer survey recently however and also found out that if they

set the price to $100, there would be demand for 80 bicycles

7. Write down the equation for the demand curve in the form of Q = c + d*p. Where c & d are

the numbers that define the demand curve (note that they may be negative). Show your

work.

Given that we have both supply and demand now, we can determine the market equilibrium

for prices and quantities. Recall that equilibrium will occur when, for a given price, the quantity

supplied (QS) is exactly equal to the Quantity demanded (QD)

8. Plot both demand and supply curves together, showing the point of equilibrium, and

labelling the equilibrium price and quantity specifically (including the values for Q* & p* -

show your work for how you get these). As always, have quantity (Q) on the x-axis and price

(p) on the y-axis.

9. Are Demand and Supply elastic or inelastic in this case? Which is more inelastic in this case?

How do you know?

Suppose that we are thinking about a farmers market for mangos. As the price adjusts, sellers

are able to see all the sales they are able to make at these given prices. This produces a demand

schedule for mangos given by:

10. Suppose that the price drops from $3.00 to $2.50. Calculate the elasticity of demand for this

part of the demand curve. (Hint: use the $3.00 and $2.50 as the reference points to get your

p and Q values). Show your work.

11. Is demand elastic, inelastic, or unit elastic in this portion of the demand curve. How do you

know?

Note that for each $0.50 drop in the price, the quantity is actually increasing at an increasing

rate. To see this, for example, compare the change in Q when you go from $4.50 to $4.00 and

when you go from $1.00 to $0.50.

12. Given that the quantity purchased is actually increasing by a lot more as the price gets

lower for a given $0.50 change, does this mean that demand is getting more elastic as the

price is dropping? Why or why not? Show your work.

Now suppose that the price of mangos has settled at $3.00 with 90 mangos being sold. At the

same market, there are sellers who have been selling papayas for $5.00 each. But now, the

price of papayas drops to $3.00 each. The mango sellers see the quantity of their mangos sold

increase to 110 mangos sold.

13. Calculate the cross-price elasticity of mango sales (Quantity) with respect to the price of

papayas. Show your work.

14. Are mangos and papayas compliments or substitutes in this example. How do you know?

I would really appreciate it if you could help me to solve these questions.