Principles of Microeconomics

Q1Suppose that the demand for Chocolate is given b??=100?2??Q=100?2pa)(5 points) If the price of chocolate increases from 10 to 20, what is the elasticity of demand?

b) (5 points) What happens to the total expenditure of chocolate with the price increase?

c) (5 points) What is the elasticity of demand when P=40?

d) (5 points) Is chocolate demand elastic or inelastic? ExplainQ2Suppose the price of gas goes up by 10% (due to a war in the middle east) and as result we see that in the short run the demand for cars goes down by 2%.a) (3points) What is the cross-price elasticity for the demand for cars with respect to the price of gas? Show your work.

b) (4 points) What would be the effect on total expenditure in cars of a 1% increase in the price of gas? Explain.

c) (3 points) Do you expect the cross-price elasticity to increase or decrease in the long run? Why?

Q3a)(5 points) Give an example of a good that is likely to have an elastic demand. Explain why.

b) (5 points) Give an example of a good that is likely to have inelastic demand. Explain why.

c) (5 points) Give an example of a good that is likely to have a negative income elasticity. Explain why.d) (5 points) Give an example of two goods that is likely to have positive cross-price elasticity.

Explain why.Q4For each of the following draw a carefully labeled diagram that illustrates the likely effect of each of the following in the market for I-phones. In each case, make sure to include a discussion, to justify your answer and any assumptions you make in your answer.

a) (10 points) New information emerges about’s Apple use of child labor in it’s factories in China, which harms the company’s reputation. b) (10 points) The price of Android smartphones goes up.

c) (10 points)As a result of the Covid pandemic, I-phone buyer’s incomes go downQ3/25 pointsSuppose that in the market for lemons, the daily demand (in lbs) is given by ??(??)=100?2??D(P)=100?2Q, and daily supply(in lbs) is given by ??(??)=2??S(P)=2Q. a) (5 points) Solve algebraically for equilibrium price and quantity.

b) (10 points) In a carefully labeled diagram, show the equilibrium you found in part a). Make sure to label your axis, the curves, and the equilibrium price and quantity.

Also, label where the curves intercept each of the axes.

c) (10 points) Suppose that as a result of an increase in the price of oranges the demand curve changes to ??(??)=200?2??D(P)=200?2Q. Based on this, are oranges and lemons complements or substitutes? Why?