ECON 2300 Study Guide - Midterm Guide: Budget Constraint, Demand Curve, Economic Equilibrium

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beigeraccoon934

4 Dec 2013

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Please note that these listed questions are minimum (not maximum) preparation for the midterm. Week 1: demand curve: qd=100-2p, supply curve: qs=20+p and tax = per unit on supply side. Compute the equilibrium before and after the tax and the amounts of consumer and producer burdens: explain income and substitution effects and how these effects contribute the downward sloping demand curve, explain the law of demand. How is a market demand curve derived from individual demand curves: explain the law of supply. Week 2: budget constraint is given that: 10x1+10x2=100. A 50% tax rate applied to the consumption of x1, derive the budget constraint after tax, and show graphically the. Instructor: dr. david k. lee budget constraint before and after tax. A 50% tax rate applied to the consumption of both x1, and x2, compute the equivalent income tax rate. A 50% tax rate applied to the consumption of x1 if x1 is consumed 5 or more quantity.

Related Questions

Explain the law of demand. Why does a demand curve slope downward? How is a market demand curve derived from individual demand curves?

Demand curve:

The demand curve is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at any given price. It is a graphic representation of a market demand schedule. The demand curve for all consumers together follows from the demand curve of every individual consumer: the individual demands at each price are added together, assuming independent decision-making. Demand curves are used to estimate behaviors in a competitive market and are often combined with supply curves to estimates the equilibrium price. Demand curves are usually considered as theoretical structures that are expected to exist in the real world, but real-world measurements of actual demand curves are difficult and rare.

The demand curve will move downward from the left to the right, which expresses the law of demand.

If the price of corn rises, consumers will have an incentive to buy less corn and substitute other foods, so the total quantity of corn consumers’ demand will fall. The degree to which rising price translates into falling demand is called demand elasticity or price elasticity of demand. If a factor besides price or quantity changes, a new demand curve needs to be drawn. For example, say that the population of an area explodes, increasing the number of mouths to feed. In this scenario, more corn will be demanded even if the price remains the same, meaning that the curve itself shifts to the right.

According to my view, the demand curve for the Apple Video iPod will increase. According to the given paragraph iPod is thinner and lighter. The hardware and software ecosystem offers good content options and also portable. These are the main qualities expected by the customers. Henceforth customer wants to buy this product in the future also. If the price of the product increases in the future the demand for the product also increases because customers demand more products thinking of price increase in the future. At the same time if the price decreases in this case also customers will buy the product because they think that the good product is coming at a reasonable price. The demand curve for Apple Video iPod in the future may be like follows.

What is your opinion on a competitor product which has similar features to that of an i-pad or say it is better than i-pad and is offered at a comparatively cheaper price, how this will affect the i-pad demand curve and why?

bronzemule740

The general supply function for new housing in New Orleans is estimated to be

Qs = 96 + 2P - 10PL + 4PK

where P is the price per square foot of new housing in New Orleans, PL is the average hourly wage rate for construction workers, and PK is the price of capital (as measured by the average rate of interest paid on loans to home builders). Qs is measured in units of 1,000 square feet per month.

5. Does it make sense for PL and PK to have negative coefficients in the general supply function? Explain why or why not.

6. If the average hourly wage rate for construction workers is $10 per hour and the average rate of interest on loans to builders is 9 percent (i.e., PK = 9), then the supply function for new housing is

Qs = ______________________.

7. Graph the supply curve for new housing in the graph below. Label supply S0.

8. Solve mathematically for equilibrium price and quantity. Show your work:

PE = $__________ per square foot.

QE = __________ square feet per month (in 1,000s).

9. Do your supply and demand curves intersect at PE and QE found in question 8 above? Should they?

10. At the equilibrium point in question 8, compute consumer, producer, and social surpluses:

CS = $____________

PS = $____________

SS = $____________

11. Suppose New Orleans suffers a serious recession that causes average monthly income to fall from $1,500 to $1,100 per month. If other things remain the same, the demand for new housing in New Orleans is now:

Qd = _______________________.

Plot this new demand curve in the figure below. Label it D'.

12. Suppose that because of the recession in New Orleans, the wage rate for construction workers falls to $8 per hour. If other things remain the same, the supply of new housing in New Orleans is now:

Qs = _______________________.

Plot this new supply curve in the figure. Label the new supply curve S'.

13. After income falls to $1,100 and wages fall to $8, new equilibrium price and quantity are

PE = $__________ per square foot QE = __________ square feet per month (in 1,000s)

Housing Market in New Orleans

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ECON 2300 Study Guide - Midterm Guide: Budget Constraint, Demand Curve, Economic Equilibrium

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