1. The table shows a list of events. Each event affects the market indicated. In each case you should show the effects of the event on demand (D), supply (S), the equilibrium price (P), and the equilibrium quantity (Q).
The events are independent in the sense that an event listed in one row of the table does not affect the market in a different row. Be sure to take into account the information given about the elasticity in each problem before answering.+ increase or shift right , - decrease or shift left , U uncertain effect or shift, 0 no effect or shift
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Market in Kuwait
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Event
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D
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S
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P
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Q
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Hamburgers
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Income increases (ay < 0)
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Cigarettes
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The government raises the tax on
tobacco paid by cigarette producers
(Ed - 0)
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Rental apartments in the
short nm
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Population increases due to increased
immigration of foreign workers.
(s. - 0)
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Tea
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Price of coffee increases (se > 0)
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2. The table shows the quantity demanded and quantity supplied of 250 gr. of gourmet coffee in Kuwait.
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Price (KD)
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Quantity Demanded
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Quantity Supplied
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10.000
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0
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100
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8.000
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30
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70
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6.000
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50
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50
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5.000
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80
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20
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a. Using the arc elasticity measure, calculate the following price elasticities of demand and indicate whether your result shows that demand is price inelastic, price elastic, or unitary elastic.
i). Price falls from 6 KD to 5 KD. εd = ________. Inelastic, elastic, unitary (circle one)
ii). Price rises from 8 KD to 10 KD. εd = ________. Inelastic, elastic, unitary (circle one)
b. Using the arc elasticity measure, calculate the price elasticities of supply and indicate whether your result shows that supply is price inelastic, price elastic, or unitary elastic.
i). Price falls from 6 KD to 5 KD. εd = ________. Inelastic, elastic, unitary (circle one)
ii). Price rises from 8 KD to 10 KD. εd = ________. Inelastic, elastic, unitary (circle one)
3. The table shows the total utility Paco receives from eating cookies every day. Utility, in this problem, is measured in units of satisfaction called utils. More utils means more satisfaction.
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Cookies per day
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Total Utility
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Marginal Utility
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0
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0
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---
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1
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100
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2
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175
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3
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240
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4
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280
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5
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300
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6
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300
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7
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270
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a. Fill in the third column of the table showing the marginal utility of each additional cookie as consumption increases.
b. Although we cannot determine exactly how many cookies Paco will eat every day, it is possible to determine the maximum number of cookies he will eat as long as he must pay for his own cookies. What is this maximum number?______________
4. The demand schedule for coffee at GUST on Mondays and Wednesdays is Qd = 500 - 100P. Using the point elasticity formula, determine the price elasticity of demand for coffee at the following price quantity combinations and indicate whether demand is price inelastic, price elastic, or unitary elastic for each combination.
a. P = 2 KD, Qd = 300 εd = ________. Inelastic, elastic, unitary (circle one)
b. P = 3 KD, Qd = 200 εd = ________. Inelastic, elastic, unitary (circle one)
5. The supply schedule for coffee at GUST on Mondays and Wednesdays is Qs = 100P. Using the point elasticity formula, determine the price elasticity of supply for coffee at the following price quantity combinations and indicate whether supply is price inelastic, price elastic, or unitary elastic for each combination.
a. P = 2 KD, Qs = 200 εs = ________. Inelastic, elastic, unitary (circle one)
b. P = 3 KD, Qd = 300 εs = ________. Inelastic, elastic, unitary (circle one)