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ECON 3010 Intermediate Microeconomics Fall 2016 Problem Set #1 1. In 2009 and 2010 the US government instituted a program where all first-time

 

homebuyers received an $8,000 tax credit upon the purchase of a new house. In April

 

2010, just prior to the credit?s expiration, sales rose 7.6% and the median US home price

 

rose 4% to from $167,000 to $174.000. Assume that all buyers received the $8,000

 

subsidy.

 

1) Show the effects of the subsidy on a graph.

 

2) Assuming that all buyers received the credit, estimate the own price elasticity of

 

demand and own price elasticity of supply

 

3) Who gained more from the subsidy, buyers or sellers?

 

p=120?Q1 2. Suppose that the inverse demand function for movies is

 

students and

 

function ( p=120?2Q2 Q=Q 1 +Q 2 for college for other town residents. What is the town?s total demand as a function of p)? Use a diagram to illustrate your answer. 3. The estimated demand function for pork is:

 

The estimated supply function for pork is: Q=171?20 p+20 pb +3 pc +2 Y Q=178+ 40 p?60 ph (1) How does the equilibrium price of pork vary as the income (Y) if the variables that

 

affect demand are held constant at their typical values (using the values Y=12.5, pb =

 

4, pc = 3.33 and ph=1.50)? (Hint: calculate ?p

 

?Y ). (2) Given the demand function above with all the values, what would be the cross-price

 

elasticity between the price of chicken (pc) and the quantity of pork? 4. Please read the news following the link: http://www.wsj.com/articles/airline-fare-riddle- one-route-two-prices-1420676518. The article has also been posted with this problem set.

 

Please use supply-demand analysis to explain the phenomena that the air fares could be

 

different for the same route with different directions. You might want to discuss the

 

reasons behind the high demand for a selected originating market, price elasticity of

 

demand might also help in explaining the high price of a specific direction. Further online

 

search and study about differential airline pricing for the same route is encouraged.

 







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