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Problem Set 1

The document presents a problem set focused on supply and demand functions for corn and chicken, including calculations for supply curves, elasticity, and the impact of price changes. It includes specific questions about the supply curve for corn in 2010, shifts in the supply curve due to changes in soybean prices, and the elasticity of demand for chicken and beef. The document requires analytical reasoning to interpret coefficients and calculate elasticities based on given equations and market scenarios.

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ericseo0215
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13 views2 pages

Problem Set 1

The document presents a problem set focused on supply and demand functions for corn and chicken, including calculations for supply curves, elasticity, and the impact of price changes. It includes specific questions about the supply curve for corn in 2010, shifts in the supply curve due to changes in soybean prices, and the elasticity of demand for chicken and beef. The document requires analytical reasoning to interpret coefficients and calculate elasticities based on given equations and market scenarios.

Uploaded by

ericseo0215
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Problem Set 1

1. Consider the estimated supply function for corn given (in the relevant region) by

Q = 80 + 1.5 p_c − 0.6 p_s + 0.04 T

where Q is the quantity of corn supplied in millions of bushels per year, p_c is the price of
corn in dollars per bushel, p_s is the price of soybeans in dollars per bushel, and T is time
measured in number of years since the base year, which is 1995.

a. What is the equation of the supply curve for corn in 2010 when the price of soybeans is
$3.50 per bushel?

b. How does the supply curve shift if the price of soybeans decreases from $3.50 to $3.00
per bushel [still in 2010]?

c. By how much must the price of corn increase in order to have the quantity supplied
increase by 3 million bushels per year? Does your answer depend on whether you use the
supply curve from Part (a) instead of from Part (b) (after the change in the price of
soybeans)? Explain why or why not.

d. How would you interpret the coefficient on T?

2a. Consider the market for a particular type of computer memory chip. Would you expect
the long-run (own-price) elasticity of supply to be larger or smaller than the short-run
elasticity? Why?

2b. Consider the market for new automobiles in Canada. Would you expect the long-run
(own-price) elasticity of demand to be larger or smaller than the short-run elasticity? Why?

3a. Suppose the demand function for chicken can be expressed (in the relevant region) as

Q = 110 + 10M − 70p + 20p₂

where Q is the quantity of chicken demanded (in millions of kilograms per year), M is
average household income in thousands of dollars per year, p is the price of chicken in
dollars per kilogram, and p₂ is the price of beef in dollars per kilogram.

Calculate the own-price elasticity of demand for chicken when M = 40, p = 4, and p₂ = 6.

3b. [Not related to Part (a).] Suppose the own price elasticity of demand for beef is −0.8 and
the cross price (chicken price) elasticity of demand for beef is 0.4.

Starting from a beef price of $6 per kilogram, a chicken price of $4 per kilogram, and a
quantity demanded of 30 million kilograms per month, if the price of chicken decreases to
$3 per kilogram, does the quantity of beef demanded increase or decrease, and by how
much?
4. Consider the estimated supply function for corn given (in the relevant region) by

Q = 30 + 1.5 p_c − 0.6 p_s

where Q is the quantity of corn supplied in millions of bushels per year, p_c is the price of
corn in dollars per bushel, p_s is the price of soybeans in dollars per bushel. What is the
own-price elasticity of supply for corn when the price of corn is $4.00 per bushel and the
price of soybeans is $5.00 per bushel?

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