1. Suppose the current price of copper is $3 per pound and the quantity supplied is 200 pounds per day. If the price of copper falls to $2.50 per pound, the quantity supplied drops to 180 pounds per day. Use the midpoint formula to calculate the price elasticity of supply for copper.
2. The government of Bassaland is looking for new revenue sources. It is considering imposing an excise tax on two goods: palm wine and diapers. If the price elasticity of demand for the goods is -0.47 and -1.89 respectively, which good should it tax if the goal is to raise revenue? If the government wants to tax only one good, which good should it tax if the goal is to discourage consumption? Explain your answer.
3. In each of the following situations, graph and list what will happen to the equilibrium price and the equilibrium quantity for sunglasses, which are a normal good.
a. The population increases and the price of inputs increase
b. The price of a complement increases and technology advances
c. Price is expected to increase in the future
4. Two stores—Lazy Guy's and Ralph's Recliners—are located in the same city. Both stores buy recliner chairs from the same manufacturer at the same price and both stores are about the same size, so that the fixed costs of production for both stores are the same. Ralph's Recliners sells more recliners per month and Ralph's has a lower average total cost of production. Explain why the average total cost of production is lower for Ralph's Recliners?