Overview
Question 1
What is the maximum amount you would pay for an asset that generates an income of $250,000 at the end of each of five years if the opportunity cost of using funds is 8%?
Question 2
Suppose the supply function for product X is given by Qxs = −30 + 2Px − 4Pz.
- How much of product X is produced when Px = $600 and Pz = $60?
- How much of product X is produced when Px = $80 and Pz = $60?
- Suppose Pz = $60. Determine the supply function and inverse supply function for good X. Graph the inverse supply function.
Question 3
Suppose the own price elasticity of demand for a good X is −5, its income elasticity is −1, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is 3.
Determine how much the consumption of this good will change if:
- The price of good X decreases by 6%.
- The price of good Y increases by 7%.
- Advertising decreases by 2%.
- Income increases by 3%.
Question 4
- A consumer is in equilibrium at point A in the accompanying figure. The price of good X is $5.
- What is the price of good Y?
- What is the consumer’s income?
- At point A, how many units of good X does the consumer purchase?
- Suppose the budget line changes so that the consumer achieves a new equilibrium at point B. What change in the economic environment led to this new equilibrium? Is the consumer positively or negatively affected by the price change?