1. The price elasticity of the demand for gasoline is .02. The price elasticity of demand for gasoline at Joe’s service station is 1.2. Explain what might account for the difference in elasticities.

The price elasticity of supply is 0.8​, and price increases by 0.5percent. As a​ result, the quantity supplied will increase by ................ percent.  

​(Enter your response as a real number rounded to one decimal​ place, and do not use a percentage​ sign.)

The demand for salt is price inelastic and the supply of salt is price elastic. The demand for caviar is price elastic and the supply of caviar is price inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt and a tax of $1 per pound is levied on the buyers of caviar. We would expect that most of these taxes will be paid by the _________ of salt and the ________ of caviar.
A. sellers: buyers
B. sellers; sellers
C. buyers; sellers
D. buyers; buyers
E. B or D, only

Which of the following statements is (are) correct?
(x) A buyer’s willingness to pay is the maximum amount that a buyer will pay for a good and it is a measure of how much the buyer values the good.
(y) A buyer is willing to buy a product at a price less than or equal to his willingness to pay, but would refuse to buy a product at a price more than his willingness to pay.
(z) When a buyer’s willingness to pay for a good is equal to the price of the good, the buyer will buy the good because the buyer will receive benefit from the good.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

Which of the following statements is (are) correct? In a market
(x) the marginal buyer is the buyer who would be the first to leave the market if the price were any higher.
(y) for any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay.
(z) an increase in the price of a good would entice a marginal buyer to make a purchase of that good.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

The original price of a TV was reduced by 40%. The sales price was then reduced by 35%. This price was then reduced by 25%. If the TV is now selling for $438.75, what was the original price? Please show working of the problem.

Based on the spot price of $66 and the strike price $68 as well as the fact that the risk-free interest rate is 6% per annum with continuous compounding, please undertake option valuations and answer related questions according to following instructions:

Binomial trees:

Additionally, assume that over each of the next two four-month periods, the share price is expected to go up by 11% or down by 10%.

1. Use a two-step binomial tree to calculate the value of an eight-month European call option using the no-arbitrage approach. [2.5 marks]
2. Use a two-step binomial tree to calculate the value of an eight-month European put option using the no-arbitrage approach. [2.5 marks]
3. Show whether the put-call-parity holds for the European call and the European put prices you calculated in a. and b. [1 mark]
4. Use a two-step binomial tree to calculate the value of an eight-month European call option using risk-neutral valuation. [1 mark]
5. Use a two-step binomial tree to calculate the value of an eight-month European put option using risk-neutral valuation. [1 mark]
6. Verify whether the no-arbitrage approach and the risk-neutral valuation lead to the same results. [1 mark]
7. Use a two-step binomial tree to calculate the value of an eight-month American put option. [1 mark]
8. Calculate the deltas of the European put and the European call at the different nodes of the binomial three. [1 mark]

The price elasticity of demand for product A is 2.32. The price elasticity of demand for product Z is 0.12. This difference could be due to the fact that

A. there are many good substitutes for product A and few substitutes for product Z.

B. there are many good substitutes for product Z and few substitutes for product A.

C. product A is a necessity and product Z is a luxury.

D. product Z is a necessity and product A is a luxury.

E. Both A and D are correct.

17. If the price is P2, then the firm will choose to produce where the price is equal to ATC. A) True B) False 18. Curve ____ is the ____, and a competitive market price equal to ____ would be ____. A) N; ATC; P2; the break-even price B) O; AVC; P1; the break-even price C) O; AVC; P2; the shut-down price D) N; AVC; P3; the shut-down price 19. The firm in a competitive market will make a positive level of profit if they choose to produce q2 when the price is P3. A) True B) False 20. The slope of the total cost curve is: A) marginal cost. B) marginal revenue. C) constant under perfect competition. D) always negative. 21. In consumer equilibrium, the consumer's substitution ratio for two goods equals the price ratio of the two goods. A) True B) False

1. Law of one price. Suppose the price of a pair of Crocs in the U.S. is $10.00 and in the People’s Republic of China (PRC) it is ¥40 (Yuan or RMB), and the current spot exchange rate is: e^¥/_$ = 3.
   1. (5 pts.) Determine the following:

e$/¥ =
e¥/$ Law of One Price =
e$/¥ Law of One Price=
$ Overvalued or Undervalued (circle the correct answer):	Overvalued         Undervalued
¥ Over or Undervalued (circle the correct answer)):	Overvalued         Undervalued