Compare and contrast the price elasticity of supply and price elasticity of demand, and define income elasticity and how it distinguishes normal and inferior goods.

Compare and contrast the price elasticity of supply and price elasticity of demand, and define income elasticity and how it distinguishes normal and inferior goods.

1. Does a price ceiling change the equilibrium price?
2. What would be the impact of imposing a price floor below the equilibrium price?
3. How does a price ceiling set below the equilibrium level affect quantity demanded and quantity supplied?
4. Does a price floor attempt to make a price higher or lower?
5. How does a price floor set above the equilibrium level affect quantity demanded and quantity supplied?

Assume an initial underlying stock price of $20, an exercise price of $20, a time to expiration of 3 months, a risk free rate of 12% and a underlying stock return variance of 16%. If the risk free rate decreased to 6% and assuming other variables are held constant, the call option value would

A) increase

B) remain the same

C) decrease

D) indeterminate from the information given

What is elasticity? What is price elasticity of demand? What is price elasticity of supply?

Determine the price elasticity of demand, the cross-price elasticity of demand or the income elasticity in the following scenarios

a.  Consider the market for coffee. Suppose the price rises from $4 to $6 and quantity demanded falls from 120 to 80. What is price elasticity of demand? Is coffee elastic or inelastic?

b.  John’s income rises from $20,000 to $22,000 and the quantity of hamburger he buys each week falls from 2 pounds to 1 pound. What his income elasticity? Is hamburger a normal or inferior good?

c.  The price of apples rises from $1.00 per pound to $1.50 per pound. As a result, the quantity of oranges demanded rises from 8,000 per week to 9,500. What is the cross-price elasticity of apples? Are these goods substitutes or complements?

Is the price of chicken lower than the price of beef because beef is preferred over chicken (the demand factor), or because it is cheaper to produce chicken (the supply factor)? Is the cost of producing chicken lower than the cost of producing been because chicken is considered an inferior good?

1. Draw a price setting and demand curve for a situation where the buyer sets the price. Explain what it shows.

2. Draw a price ceiling and explain what it does. Be sure to include its effects on price and quantity.

3. List at least 5 reasons why an industry or company would want to vertically integrate.

1. Consider a price-taking firm operating in a market with price, p. The production function for the firm is FK,L=KαLβ. Where K is units of Capital and L is units of Labour. If the cost of each unit of capital is r and the cost of each unit of labour is w.
   1. Is the production function homogenous? If so, what is the degree of homogeneity?
   2. Under what conditions does the production function exhibit increasing, constant or decreasing returns to scale?
   3. Write out the Cost Function CK,L. Is the cost function homogenous? If so, what is the degree of homogeneity?
   4. Write out the profit function π(K,L). Is the profit function homogenous? If so, what is the degree of homogeneity?
   5. Find the critical values for the profit function, L*and K*.
   6. Under what conditions are the values in part e. profit maximizing?
   7. Find the maximum profit under the condition specified in part f.
   8. What can you say about the case where the conditions in part f. are violated.

2. For the function z=fx,y=x3- 3xy-y3
   1. Find the equation of this function when y is fixed at the following values: -2,-1,0,1,2. Plot these equations on the same axes, carefully labelling each line.

Calculate the price elasticity of demand for each price change. Note, you will begin with the change in price from $2.25 to $3.25.

Assume a merchant was thinking of decreasing the price from $4.25 to $3.25. Based on your calculations, is the price decrease a good idea for the merchant? Please explain why.

How much would consumers respond to a price increase from $2.25 to $3.25. What is the effect on the merchant?