*1.
1 The estimated demand function (Moschini and Meilke, 1992) for Canadian
processed pork is Q = 171 – 20P + 20Pb + 3Pc + 2Y, where Q is the quantity in million
kilograms (kg) of pork per year, P is the dollar price per kg, Pb is the price of beef per
kg, Pc is the price of chicken in dollars per kg, and Y is average income in thousands
of dollars. What is the demand function if we hold Pb, Pc, and Y at their typical values
during the period studied: Pb = 4, Pc =10/3, and Y = 12.5?
*1.2 Using the estimated demand function for processed pork from Exercise 1.1,
show how the quantity demanded at a given price changes as per capita income, Y,
increases by $100 a year.
1.3 Given an estimated demand function for avocados of Q = 104 – 40P + 20Pt +
0.01Y, show how the demand curve shifts as per capita income, Y, increases from
$4,000 to $5,000 per month. (Note: The price of tomatoes, Pt, is $0.80.) Illustrate this
shift in a diagram
2.3 If the U.S. supply function for corn is Qa = 10 + 10P and the supply function of the
rest of the world for corn is Qr = 5 + 20P, what is the world supply function
3.5 The demand function for a good is Q = a - bP, and the supply function is Q = c + eP,
where a, b, c, and e are positive constants. Solve for the equilibrium price and
quantity in terms of these four constants.
*4.4 The demand function is Q = 220 – 2P, and the supply function is Q = 20 + 3P - 20r,
where r is the rental cost of capital. How do the equilibrium price and quantity vary
with r?
4.5 Due to a recession that lowered incomes, the market prices for last-minute
rentals of U.S. beachfront properties were lower than usual. Suppose that the
demand function for renting a beachfront property in Ocean City, New Jersey, during
the first week of August is Q = 1,000 - P + Y/20, where Y is the median annual income
of the people involved in this market, Q is quantity, and p is the rental price. The
supply function is Q = 2P - Y/20.
a. Derive the equilibrium price, p, and quantity, Q, in terms of Y.
b. Use a supply-and-demand analysis to show the effect of decreased income on
the equilibrium price of rental homes. That is, find dP/dY. Does a decrease in median
income lead to a decrease in the equilibrium rental price?
5.2
Calculate the elasticity of demand, if the demand function is:
a. Q = 120 – 2P + 4Y, at the point where p = 10, Q = 20.
10
b. Q = P2
5.8
Calculate the price and cross-price elasticities of demand for coconut oil. The
coconut oil demand function (Buschena and Perloff, 1991) is Q = 1,200 - 9.5P +
16.2Pp + 0.2Y, where Q is the quantity of coconut oil demanded in thousands of
metric tons per year, P is the price of coconut oil in cents per lb, Pp is the price of
palm oil in cents per lb, and Y is the income of consumers. Assume that P is initially
45¢ per lb, Pp is 31¢ per lb, and Q is 1,275 thousand metric tons per year.
6.10
The estimated demand function for coffee is Q = 12 - P, and the estimated supply
function is Q = 9 + 0.5P.
a. Write equations for the equilibrium price and quantity as a function of a specific
tax t.
b. What are the equilibrium price and quantity and the tax incidence on consumers if
t = $0.75?
7.2
The Thai government actively intervenes in markets (Nophakhun Limsamarnphun,
“Govt Imposes Price Controls in Response to Complaints,” The Nation, May 12,
2012).
a. The government increased the daily minimum wage by 40% to Bt 300 ($9.63).
Show the effect of a higher minimum wage on the number of workers demanded,
the supply of workers, and unemployment if the law is applied to the entire labor
market.
b. Show how the increase in the minimum wage and higher rental fees at major
shopping malls and retail outlets affected the supply curve of readyto-eat meals.
Explain why the equilibrium price of a meal rose to Bt 40 from Bt 30.
c. In response to complaints from citizens about higher prices of meals, the
government imposed price controls on 10 popular meals. Show the effect of these
price controls in the market for meals.
d. What is the likely effect on the labor market of the price controls on meals?
