Homework XXXXXXXXXXpoints
1. Problem #1 Markets and Elasticities
Suppose the market for printer paper ($ price per a 500-page package or ream) can be characterized by the following demand and supply relationships:
DEMAND:
SUPPLY:
a) Graph the market demand and market supply curves on the axes found on the next page. Label demand D1 and supply S, and mark the equili
ium point with the letter E.
) What are the equili
ium price and quantity at point E? [HINT: Keep both equations in cu
ent form. In equili
ium, demand and supply intersect at a common price, so you can set and solve for equili
ium Q. Then plug that value into either equation to get the equili
ium price.
Price __________ Quantity __________
c) Suppose the world faces a global pandemic, driving people, workers, and students to move most of their activities online. Assume no disruption in the production and supply of paper. How will this development affect the market demand for paper? (Your answer should describe the impact in terms adjustments to market demand: a shift and the direction of that shift.)
d) Which of the demand “drivers” has triggered the shift you described in part c)?
e) What will happen to the equili
ium price and quantity as a result of your answer in part c)?
f) Suppose the new market price for paper is now $8 per package. The following table shows the relationship between the price of paper and the quantity demanded of laser printers?
Price of Pape
Quantity Demanded of Printers
Initial equili
ium for paper market
$10
160
New equili
ium for paper market
$8
200
g) Without doing any calculations, determine whether paper and printers are substitutes or complements. Explain your reasoning.
h) What is the cross-price elasticity of printers with respect to paper? Use the midpoint formula.
i) If the price of paper fell by 10% during the pandemic, what will be the resulting percentage change in the demand for printers?
PRICE
QUANTITY
2. Problem #2 Elasticities
The following table provides information on the market for cell phones.
a. Find the (own) price elasticity of demand for cell phones using the midpoint formula.
. How would you classify the good based on the calculated elasticity? Demand for cell phones is ____________.
c. Suppose the original market price is $1,000. If the price increases by 10% what will be the impact on the quantity demanded?
Quantity demanded will __________ by ____________%
The following table shows the relationship between Diego Nguyen’s income and his demand for concert tickets
d. What is Diego’s income elasticity of demand for tickets?
e. Based on his income elasticity, if his income fell by 5%, what would happen to his quantity demanded of concert tickets?
f. Classify concert tickets based on Diego’s income elasticity and explain your reasoning.
The following table shows the relationship between the price of hamburgers and Raquel’s demand for hamburger buns.
g. Compute the cross-price elasticity of demand for buns with respect to the price of burgers
h. How would you classify buns and burgers, based on the cross-price elasticity?
i. Suppose the price of burgers increased by 15%. What will happen to the quantity demanded of buns?
j. How would you graph the impact of a 15% increase in the price of burgers on a market diagram for buns?
Econ 300 Homework 2.docx/Page 1
PointPQ
A$1,0002000
B$8003000
Market for Cell Phones
PointIncome/MonthQ
A$3,0002
B$5,0004
Market for Concert Tickets (per Month)
PointP_Burger ($/lb)Q_Buns (packages)
A$5.004
B$4.006
Market for Buns (Per Month)