PRACTICE QUESTIONS DEMAND AND SUPPLY 1 Midcontinent Plastics makes 80 fiberglass truck hoods per day for large truck manufacturers. Each hood sells for $500.00. Midcontinent sells all of its product to the large truck manufacturers. If the own price elasticity of demand for hoods is -0.4 and the price elasticity of supply is 1.5. Assume that the demand and supply functions are linear i.e., Q d =a 0 −a 1 P ; Q s =b 0 +b 1 P (i) Compute the supply and demand for truck hoods. (ii)If the local county government imposed a per unit tax of $25.00 per hood manufactured, what would be the new equilibrium price of hoods to the truck manufacturer? (iii)Would a per unit tax on hoods change the revenue received by Midcontinent? 2. Let the supply curve be Q S =c+Dp. Prove that elasticity of supply is equal to 1 if c=0. And that supply is inelastic if c<0 CONSUMER BEHAVIOR 3. There are two goods, X and Y. Find the optimal bundles that you will consume for the indifference curve U(X,Y)= √Y+X. (i) P X = 1 and P Y = 1 and the income, M=100. (ii) P X = 30 and P Y = 1 and the income, M=100. 4. There are two goods, X and Y. P X = 2 and P Y = 1 and the income, M=100. Find the optimal bundle of consumption for
1 Midcontinent Plastics makes 80 fiberglass truck hoods per day
for large truck manufacturers. Each hood sells for $500.00.
Midcontinent sells all of its product to the large truck
manufacturers. If the own price elasticity of demand for hoods is
0.4 and the price elasticity of supply is 1.5. Assume that the
demand and supply functions are linear i.e., ;
(i) Compute the supply and demand for truck hoods.
(ii)If the local county government imposed a per unit tax of
$25.00 per hood manufactured, what would be the new equilibrium
price of hoods to the truck manufacturer?
(iii)Would a per unit tax on hoods change the revenue received
by Midcontinent?
2. Let the supply curve be QS=c+Dp. Prove that elasticity of
supply is equal to 1 if c=0. And that supply is inelastic if c
