1. The Potato Growers Association of America estimates that next year the demand and supply functions facing U.S pot6ato growers will be; Qd = 28 - 0.04 P
Qs = -2 + 0. 16 P
Where quantity demanded and quantity supplied are measured in trillions of hundredweight (a measure equal to 100 pounds) per year, and price is measured in cents per hundredweight. The market clearing price is easily determined by setting quantity demanded equal to quantity supplied and solving algebraically for equilibrium price. Therefore,
Qd = Qs
28 - 0.04 = -2 + 0.16P
30 = 0.20P
150 = Pe, this means the equilibrium price of potatoes next year will be 150 cents ($1.50) per hundredweight. (TRUE OR FALSE)
2. The equilibrium level of potato production is determined by substituting the market price of 150 cents($1.50) into either the demand or the supply function to get Qe:
Qd = Qs = Qe
28 - (0.04 x 150) = -2 + (0.16 x 150) = 22. Thus the equilibrium output of potatoes will be 22 trillion hundred weight per year.(TRUE OR FALSE).
3. The Potato Growers Association estimates that the advertising campaign, which will make consumers want to eat more potatoes, will increase demand to:
Qd = 40 - 0.05 P
Assuming that supply is unaffected by the advertising, you would obviously predict that the market price of potatoes will rise as a result of the advertising and the resulting increase in demand.However, to determine the actual price market clearing price, you must equate the new quantity demanded with the quantity supplied:
40 - 0.05P = - 2 + 0.16P
With this equation P or Pe = (a) 2000, (b) 200, (c) -200,(d)20, (e)none of these.
4. To make a quantitative forecast about the impact of the ads on the level of potato sales, you simply substitute the new market price of 200 cents into either the demand Pand supply function P to obtain the new
Qe: Qd = Qs = Qe
40 - (0.05 X P) = -2 + (0.16 X P), where P = 200
The new Qe therefore is (a) 30, (b) -30, (c) 45, (d) -45 (e) None of these.
5. The generalized demand function for a good is:
Qd = 600 - 4Pa - 0.03M - 12Pb + 15J + 6Pe + 1.5N
Calculate the quantity demanded of a good when Pa = $5, M = $25,000, Pb=$40, J = 6.5, Pe = $5.25, AND N=2,000
(a) 2, 4559, (b) 2, 479, (c) 27,459 (d) 22, 479
What happens to demand when the following changes occur?(Questions 6-12)
6. The price of the good falls. Demand, (a) increase, (b) Decreases, (c) reaches equilibrium and (d) none of these.
7. Income increases and the good is normal. Demand, (a) increases,(b) Decreases and, (c) none of these
8. Income increases and the good is inferior. Demand, (a) increases, (b) Decreases and, (c) none of these
9. The price of substitute good increases. Demand, (a) increases, (b) Decreases, and (c) none of these
10. The price of substitute good decreases. Demand, (a) increases, (b) Decreases, and (c) none of these
11. The price of complement good increases. Demand, (a) increases, (b) Decreases and (c) none of these
12. The price of complete good decreases. Demand, (a) increases, (b) Decreases, and (c) none of these
(13-15 QUESTIONS)
If a Demand function is concluded to be 32,000-16P, where P stands for price of a good.
Questions (13-15)
13. Calculate the quantity demanded of a good when P is $1,000. (a) 1300 units, (b) 1100units,
(c) 1600 units, (d) -1600 units (minus 1600 units) (e) none of these.
14. Calculate when P is $1,500. (a) 8000 units, (b)18,000 units, (c) 24,000 units, (d) none of these
15. Calculate when P is $1,700. (a) 18,000 units, (b) 81,000 units, (c) 8,000 units, (d) none of these.