Suppose the supply and demand for wheat is given by: Supply: Qs = 1800 + 240 P Demand: Qd = 2550 + 10I – 266P Where P= the price per bushel of wheat and I= income. The current value of I is 100
A. Find the current equilibrium price and quantity of wheat sold in the market place B. Find the equilibrium price and quantity if income increases to 150 C. Show the change in equilibrium using a standard supply and demand curve D. Calculate income elasticity at I= 150 and equilibrium price and quantity E. What is a type of good (normal or inferior)? Why? 2. What is the difference between a change in the quantity demanded and a shift in the demand curve? 3. A rational consumer spends all of her income on two goods: Apple and Banana. Suppose the last dollar spent on Apple increased her total utility from 60 utils to 68 utils and the last dollar spent on Banana increased her total utility from 25 utils to 29 utils. If the price of a unit of Apple is 2 Birr, what is the price of a unit of Banana at equilibrium? 4. Given utility function U= where PX = 12 Birr, Birr, PY = 4 Birr and the income of the consumer is, M= 240 Birr. A. Find the utility maximizing combinations of X and Y. B. Calculate marginal rate of substitution of X for Y (MRSX, Y) at equilibrium and interpret your result.
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