Instructions: - Show your work if you want partial marks. Wrong answers with no work shown will receive a mark of 0 . - I encourage you to work with others; however, you must submit your own version of the assignment. Further to that, I request that you not publicly post solutions for others to copy. - The answers need to be submitted through Crowdmark and are due by Oct. 14th at 11:59 pm. You will need to submit/upload your solutions through Crowdmark with the link initial link to the submission sent via e-mail by Crowdmark. - Please make sure to submit your answers in the correct position; we should be able to read your answers without having to rotate them. Finally, when capturing the image of your work, please make sure to have sufficient lighting and clarity of the images. 1. (14 marks) Suppose the market for laser pointers consists of 2 types of people: professors and cat lovers. The professors have an individual demand of qProf=1351P and the cat lovers have an individual demand of qCat=2021P. (a) (4 marks) If there are 30 consumers with a demand of qProf and 8 consumers with a demand of qCat, then what is the (inverse) market demand curve P(QD) (for all 38 people)? Illustrate it in a graph. (b) (4 marks) Suppose the (inverse) market supply curve is P=151QS, what is the market equilibrium outcome? (Hint: Both groups buy laser pointers and your quantity should be somewhere between 250 and 400 .) What is the consumer and producer surplus in this case? (Reminder: Your consumer surplus will be ugly to calculate since the demand curve is discontinuous). (c) (6 marks) The government has become concerned about long term environmental harm from improper disposal of the laser pointers. To alleviate some of the burden, the government decides to impose a $7.50 excise tax on each laser pointer sold. What is the new equilibrium? How much has the government raised in tax revenue? How big is the dead weight loss? What is the tax incidence for the consumers? 2. (18 marks) Suppose you are told that a consumer has the following utility function: U(qx,qy)=e(qy)2qx1. Their income is Y, the price of good x is Px, and the price of goody is Py. (a) (3 marks) Show that the Marginal Rate of Substitution is the same for U(qx,qy) as the positive monotonic transformation W=ln(U(qx,qy)). What type of utility function is W(qx,qy) ? (b) (4 marks) Find qx, the demand for goodx, and qy, the demand for good y. Hint: be sure to include information about where the function works. (c) (7 marks) Suppose you are given Px=$2 and Py=$18, provide a sketch of of the income-consumption curve for Y={20,25,30,35,40,45}. Be sure to label the points for each income and clearly indicate what is happening (i.e. values of qx and qy corresponding to each Y ). (d) (4 marks) Find the cross price elasticity of demand for qx and qy. Does this tell you anything about the relationship between the two goods? 3. (17 marks) This question is designed to examine how we can utilize our basic theory without having an explicit indifference curve. Suppose Lia has an income of Y= $500 and only consumes two good: memory sticks (to store free economics papers she downloads from the library) and hardcover novels (which she refuses to check out from the library). Furthermore, let the price of memory sticks be PS=$25 and the price of hardcover novels be PN=$20. (a) (5 marks) Create a graph of Lia's behaviour with the assumption that her utility is consistent with our normal assumptions (e.g. U/qi>0 and 2U/qi20 and 2U/qi2
