1. Zenna buys only apples and bananas. The price of apples is $2 a pound and the price of bananas is $1 a bunch. She has $20 to spend on apples and bananas.

a) Write the equation of her budget line or budget constraint.

b) If she spends all of her money on apple show many pounds of apples could she buy?

c) If she spends all of her money on bananas how many bunches of bananas could she buy?

d) If apples are on the horizontal axis what is the slope of her budget constraint?

e) If she buys 6 pounds of apples and she spends all of her income of $20 on either apples or bananas how many bunches of bananas does she buy?

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Ritu KharbLv5

28 Sep 2019

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15. The inverse demand function for bananas is pa=20-9d and the inverse supply function is Ps= 9s, where prices are measured in cents and bananas are measured in pounds. a. If there are no taxes or subsidies, what is the equilibrium quantity? What is the equilibrium market price? (3 marks) b. If a subsidy of 2 cents per pound is paid to banana growers, what is the new equilibrium price and quantity? How much do growers receive per pound? How much do consumers pay per pound? (4 marks) c. Compute the change in the consumer and producer surplus? Show clearly on the graph? Does the subsidy cause a deadweight loss? If so, how large. Explain using a suitable diagram. (5 marks) Express the change in price as a percentage of the original price. If the cross-elasticity of demand between bananas and apples is +0.5, what will happen to the quantity of apples demanded as a consequence of the banana subsidy (assume the price of apples stays constant). State your answer in terms of a percentage change. (4 marks)

a. Lauren is at the grocery store, where there is a sale on cereal. Cereal is only $1 per box, but next week it will be $2 per box. Lauren has $20 to spend on cereal in this two-week period. Show her cereal budget constraint and predict the point on the budget constraint that sheâll select.

b. Lauren is at the grocery store, where there is a sale on bananas. Bananas are only 25 cents per pound, but next week they will be 50 cents per pound. Lauren has $1 to spend on bananas in this two-week period. Show her banana budget constraint and predict the point on the budget constraint that sheâll select. Explain why this is likely to differ from the point that she selected on her cereal budget constraint.

In this assignment, you will integrate your knowledge from all three weekly outcomes. After reviewing the âFrom the Expertâ video this week, consider the problem of the apple farmer. In your own words, explain the farmerâs optimal solution in the free market using marginal cost analysis. How might this solution be suboptimal from societyâs perspective? Explain who benefits and is harmed under the free market solution. Explain who benefits and is harmed under the government subsidy solution? Using economic analysis and the guiding principles of sustainability, justify which solution is best.

SPEAKER 1: Jan owns an apple orchard and it's harvesting season. She has a bumper crop and needs to calculate how many apples she should pick in order to maximize her profits. For thepurposes of this example, she will sell all of her apples to the local cider mill for $0.50 each.

Jan knows that to maximize her profits, she should continue to harvest apples until she reaches the point that the marginal revenue equals the marginal cost. Jan calculates her marginal cost usingthe cost of ladder rentals and the wages of the apple pickers.

The apples on the bottom third of the tree are the cheapest to harvest at a marginal cost of $0.30 per apple. This is because her workers can pluck apples off the bottom of the tree without a ladder.To harvest from the middle of the tree, employees will take more time to pick the apples, which increases the cost of labor. Also, a small ladder is needed. This increases the marginal cost to $0.45.Harvesting from the top of the tree would increase her labor costs per hour, and also requires renting a bigger ladder. This results in $0.55 cents marginal cost.

Since Jan can only get $0.50 for an apple, she will stop picking apples when the marginal cost is greater than the marginal revenue she receives. Thus, she will harvest the apples at the bottom of thetree, and she will make $0.20 per apple. She will also harvest those apples in the middle and make $0.05 per apple. However, she won't harvest the apples at the top, because she would lose $0.05on each one.

With this example, the market economy would theoretically deem it most efficient to just leave the apples high up on the trees to rot. Some people believe that the government should providesubsidies to industries that would leave food and other essential goods to waste. Subsidies, however, cost other resources and create an unfair market.

Should the apples at the top of the tree be left to rot? Or should someone step in and get involved? What do you think should be done?

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