Start from the equilibrium point in the ice cream market. What happens to the equilibrium price and equilibrium quantity if cost of producing ice cream increases? What happens to the equilibrium price and equilibrium quantity if consumers’ income increases and ice cream is considered inferior good? What happens to the equilibrium price and equilibrium quantity if both events occurred simultaneously (at the same time)? Draw a graph for every case.
Suppose the own price elasticity of demand for burgers is – 0.25, its income elasticity is 0.5, and the cross price elasticity of demand between burgers and Ketchup is -10. Determine how much the consumption of burgers (Qd) will change if:
- The price of burgers increases by 8%. What will happen to the revenues of burger sellers?
- The price of Ketchup decreases by 5%. Is ketchup a substitute or a complement in this case? Explain
- The income decreases by 3%. Is burger a normal or inferior good in this case? Explain
Assume the inverse demand of T-shirts is determined as follows: P = 90 – Qd, and the inverse supply is determined as follows: P = 30 + ½ Qs
- Determine the equilibrium price and quantity?
- Draw the demand and supply Show the equilibrium price and quantity on the graph?
- calculate consumer surplus at the equilibrium price
- calculate the price elasticity of demand at the equilibrium price in part Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decides to charge a price below the equilibrium price? Explain
- Explain and graph the two special (extreme) cases of price elasticity of
- If government passed a law that the price for a T-shirt should be $35 (what is referred to as a price ceiling). Is there a shortage or a surplus and by how much?
- what is the full price consumers’ are willing to pay with respect to the price Explain.
- Now, assume Supply curve changed to: P = ½ Qs + 15, determine the new equilibrium and graph it by showing also old equilibrium to trace the effect on equilibrium price and quantity.