FIN 605 Week 1 Assignment Help

1.    Decide whether each of the following statements is true or false and explain why

a.      Fast food chains like McDonald’s, Burger King, and Wendy’s operate all over the United States. Therefore the market for fast food is a national market.

b.      Fast food chains like McDonald’s, Burger King, and Wendy’s operate all over the United States. Therefore the market for fast food is a national market.

c.       Some consumers strongly prefer Pepsi and some strongly prefer Coke. Therefore, there is no single market for colas.

2.      The following table shows the average retail price of butter and the Consumer Price Index from 1980 to2010.

        a. Calculate         the       real      price    of         butter  in         1980    dollars.            Has      the       real price increased/decreased/stayed the same since1980?

       b. What is the percentage change in the realprice (1980dollars) from1980  to 2000? From    1998 to 2010?

       c. ConverttheCPIinto1990=100anddeterminetherealpriceofbutterin1990dollars.

  d. What is the percentage change in the real price (1990 dollars) from 1980 to 2000? Compare this with your answer in (b). What do you notice?Explain.

(1)   Suppose the demand curve for a product is given by Q=300-2P+4I, where I is average income measured in thousands of dollars. The supply curve is Q=3P-50.

a.                  If I=25, find the market clearing price and quantity for the product.

b.                  If I=25, find the market clearing price and quantity for the product.

c.                   Draw a graph to illustrate your answers.

2.      Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows:

a.       Calculate the price elasticity of demand when the price is $80 and when the price is $100.

b.      Calculate the price elasticity of demand when the price is $80 and when the price is $100.

c.       What are the equilibrium price and quantity?

d.      Suppose the government sets a price ceiling of $80. Will there be a shortage, and if so, how large will it be?

3.      Refer to Example 2.5 on the market for wheat. At the end of 1998, both Brazil and Indonesia opened their wheat markets to U.S. farmers. Suppose that these new markets add 200 million bushels to U.S. wheat demand. What will be the free market price of wheat and what quantity will be produced and sold by U.S. farmers in this case?

4.      Refer to Example 2.5 on the market for wheat. At the end of 1998, both Brazil and Indonesia opened their wheat markets to U.S. farmers. Suppose that these new markets add 200 million bushels to U.S. wheat demand. What will be the free market price of wheat and what quantity will be produced and sold by U.S. farmers in this case?

a.   What is the equation for demand?     What is the equation for supply?

b.   At a price of $9, what is the price elasticity of demand?      What is it at price of $12?

c.   What is the price elasticity of supply at $9?     At $12?

d.   In a free market, what will be the U.S. price and level of fiber imports?

5.      Much of the demand for U.S. agricultural output has come from other countries. In 1998, the total demand for wheat was Q = 3244 - 283P. Of this, domestic demand was Q_D = 1700 - 107P. Domestic supply was Q_S = 1944 + 207P. Suppose the export demand for wheat falls by 40 percent.

a.                  U.S. farmers are concerned about this drop in export demand. What happens to the free market price of wheat in the United States? Do the farmers have much reason to worry?

b.                  U.S. farmers are concerned about this drop in export demand. What happens to the free market price of wheat in the United States? Do the farmers have much reason to worry?

6.   In 1998, Americans smoked 470 billion cigarettes, or 23.5 billion packs of cigarettes. The average retail price was $2 per pack. Statistical studies have shown that the price elasticity of demand is -0.4, and the price elasticity of supply is 0.5. Using this information, derive linear demand and supply curves for the cigarette market.

7.      In Example 2.8 we examined the effect of a 20 percent decline in copper demand on the price of copper, using the linear supply and demand curves developed in Section 2.4. Suppose the long-run price elasticity of copper demand were -0.4 instead of -0.8.

a.                  Assuming, as before, that the equilibrium price and quantity are P* = 75 cents per pound and Q* = 7.5 million metric tons per year, derive the linear demand curve consistent with the smaller elasticity.

b.      Using this demand curve, recalculate the effect of a 20 percent decline in copper demand on the price of copper.

10.              Refer to Example 2.10, which analyzes the effects of price controls on natural gas.

a.      Using the data in the example, show that the following supply and demand curves did indeed describe the market in 1975:

Supply: Q = 14 + 2P_G + 0.25P_O

Demand: Q = -5P_G + 3.75P_O

where P_G and P_O are the prices of natural gas and oil, respectively.         Also, verify that

if the price of oil is $8.00, these curves imply a free market price of $2.00 for natural gas.

b.                  Suppose the regulated price of gas in 1975 had been $1.50 per thousand cubic feet, instead of $1.00. How much excess demand would there have been?

c.                   Suppose that the market for natural gas had not been regulated. If the price of oil had increased from $8 to $16, what would have happened to the free market price of natural gas?