Managerial Economy
Name___________________________________ ESSAY. Write your answer in the space provided or on a separate sheet of paper.
1)
For each of the following changes, show the effect on the demand curve and state what will happen to market equilibrium price and quantity in the short run.
a. Consumers expect that the price of the good will be higher in the future.
b. The price of a substitute good rises.
c. Consumer incomes fall, and the good is normal.
d. Consumer incomes fall, and the good is inferior.
e. A medical report is published showing that this good is hazardous to your health.
f. The price of the good rises. 2)
For each of the following changes, show the effect on the supply curve and state what will happen to market equilibrium price and quantity in the short run.
a. The government requires pollution control filters that raise costs on goods.
b. Wages of workers in this industry fall.
c. There is an improvement in technology.
d. The price of the good falls.
e. Producers expect that the price of the good will fall in the future. 3)
For each of the following sets of supply and demand curves, calculate equilibrium price and quantity.
a. QD = 2000 - 2P; QS = 2P
b. QD = 500 - P; QS = 50 + P
c. QD = 5000 - 10P; QS = -1000 + 5P 4)
The initial price of a cup of coffee is $1, and at that price, 400 cups are demanded. If the price falls to $0.90, the quantity demanded will increase to 500.
a. Calculate the (arc) price elasticity of demand for coffee.
b. Based on your answer, is the demand for coffee elastic or inelastic?
c. Based on your answer to a., if the price of coffee is increased by 10%, what will happen to the revenues from coffee? Carefully explain how you know.
Choose the one alternative that best completes the statement or answers the question.
5)
Another name for stockholder wealth maximization is
5)
_______
A)
maximization of the value of the common stock.
B)
1)
For each of the following changes, show the effect on the demand curve and state what will happen to market equilibrium price and quantity in the short run.
a. Consumers expect that the price of the good will be higher in the future.
b. The price of a substitute good rises.
c. Consumer incomes fall, and the good is normal.
d. Consumer incomes fall, and the good is inferior.
e. A medical report is published showing that this good is hazardous to your health.
f. The price of the good rises. 2)
For each of the following changes, show the effect on the supply curve and state what will happen to market equilibrium price and quantity in the short run.
a. The government requires pollution control filters that raise costs on goods.
b. Wages of workers in this industry fall.
c. There is an improvement in technology.
d. The price of the good falls.
e. Producers expect that the price of the good will fall in the future. 3)
For each of the following sets of supply and demand curves, calculate equilibrium price and quantity.
a. QD = 2000 - 2P; QS = 2P
b. QD = 500 - P; QS = 50 + P
c. QD = 5000 - 10P; QS = -1000 + 5P 4)
The initial price of a cup of coffee is $1, and at that price, 400 cups are demanded. If the price falls to $0.90, the quantity demanded will increase to 500.
a. Calculate the (arc) price elasticity of demand for coffee.
b. Based on your answer, is the demand for coffee elastic or inelastic?
c. Based on your answer to a., if the price of coffee is increased by 10%, what will happen to the revenues from coffee? Carefully explain how you know.
Choose the one alternative that best completes the statement or answers the question.
5)
Another name for stockholder wealth maximization is
5)
_______
A)
maximization of the value of the common stock.
B)