1) Suppose the demand and supply curves for eggs in the United States are given
ID: 1188014 • Letter: 1
Question
1)
Suppose the demand and supply curves for eggs in the United
States are given by the following equations:
Qd = 100 - 20P
Qs = 10 + 40P
where Qd = millions of dozens of eggs Americans would like to
buy each year; Qs = millions of dozens of eggs U.S. farms
would like to sell each year; and P = price per dozen of eggs.
Fill in the following table:
Price Quantity Quantity
( Per Dozen) Demanded (Qd) Supplied (Qs)
$ .50
$ 1.00
$ 1.50
$ 2.00
$ 2.50
2) Kamika lives in Chicago but goes to school in Tucson, Arizona.
For the last 2 years, she has made four trips home each year.
During 2010, the price of a round-trip ticket from Chicago to
Tucson increased from $350 to $600. As a result, Kamika
decided not to buy a new outfit that year and decided not to
, drive to Phoenix with friends for an expensive rock concert.
a. Explain how Kamika's demand for clothing and concert tickets can be affected by an increase in air travel prices.
b. By using this example, explain why both income and substitution effects might be expected to reduce Kamika s number
of trips home.
3) For each of the following products, explain whether demand is likely to be elastic or inelastic.
A) Cigarettes
B) Tacos
C) Gasoline
D) Milk
4 ) Explain which of the following is a fixed cost or a variable cost
for Southwest Airlines.
a. The cost of jet fuel used in its airplanes.
b. The monthly rent on its Dallas, Texas headquarters.
c. The yearly lease payments on its current inventory of
Boeing 737 jets.
d. The cost of peanuts it serves to passengers.
5) Which of the following indistries do you think are likely to exhibit large economies of scale? explain why in each case
a) Home building
b) Electric pwer generator
c) Vegetable farming
d) Software development
e) Aircraft manufacturing
1)
Suppose the demand and supply curves for eggs in the United
States are given by the following equations:
Qd = 100 - 20P
Qs = 10 + 40P
where Qd = millions of dozens of eggs Americans would like to
buy each year; Qs = millions of dozens of eggs U.S. farms
would like to sell each year; and P = price per dozen of eggs.
Fill in the following table:
Price Quantity Quantity
( Per Dozen) Demanded (Qd) Supplied (Qs)
$ .50
$ 1.00
$ 1.50
$ 2.00
$ 2.50
2) Kamika lives in Chicago but goes to school in Tucson, Arizona.
For the last 2 years, she has made four trips home each year.
During 2010, the price of a round-trip ticket from Chicago to
Tucson increased from $350 to $600. As a result, Kamika
decided not to buy a new outfit that year and decided not to
, drive to Phoenix with friends for an expensive rock concert.
a. Explain how Kamika's demand for clothing and concert tickets can be affected by an increase in air travel prices.
b. By using this example, explain why both income and substitution effects might be expected to reduce Kamika s number
of trips home.
3) For each of the following products, explain whether demand is likely to be elastic or inelastic.
A) Cigarettes
B) Tacos
C) Gasoline
D) Milk
4 ) Explain which of the following is a fixed cost or a variable cost
for Southwest Airlines.
a. The cost of jet fuel used in its airplanes.
b. The monthly rent on its Dallas, Texas headquarters.
c. The yearly lease payments on its current inventory of
Boeing 737 jets.
d. The cost of peanuts it serves to passengers.
5) Which of the following indistries do you think are likely to exhibit large economies of scale? explain why in each case
a) Home building
b) Electric pwer generator
c) Vegetable farming
d) Software development
e) Aircraft manufacturing
Explanation / Answer
Price Quantity Quantity
( Per Dozen) Demanded (Qd) Supplied (Qs)
$ .50 90 30
$ 1.00 80 50
$ 1.50 70 70
$ 2.00 60 90
$ 2.50 50 110
Now,
2)a. Kamika has a fixed income to spend on living. She has to compensate for the rise in travel prices by decreasing her spending on clothing and concert tickets.
b. Income limits the amount that can be spent on travel tickets.The extra cost can be compensated by substitution of clothing and concert tickets.
3) For A and B, demand is expected to be elastic as the consumption of these items depend upon consumer preference.
For C and D, demand is expectd to be inelastic because these are daily need items of basic necessity.
4) a. Variable cost: Depends upon the nuber of jets that fly in a given period of time.
b. Fixed cost: Monthly rent remains constant
c. Fixed cost: Same as above
d. Variable cost: Depends on the number of passengers
50. b,d and e are expected to exhibit large economies of scale as their Fixed costs are very high when compared to their variable costs.
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