Question 2 Assume that each of the markets below is initially in equilibrium. Then for each market below, suppose that the indicated scenario occurs. Illustrate the effect of each event in a diagram and indicate the effects on the equilibrium price and quantity. a. Market: Airbnbs. Scenario: Hotels provide a discount to customers during the winter. [3 marks] b. Market: Salmon. Scenario: The Ministry of Health warn that consumption of salmon may lead to high cholesterol coupled with an increase in the price of fish bait. [3 marks] c. Market: Tablets. Scenario: Consumers learn that laptops will be much more heavily taxed starting with next year's models. [3 marks] d. Market: Donuts. Scenario: Krispy Kreme opens a franchise in Barbados. [3 marks] e. Market: E-cigarettes Scenario: The government places a tax on e-cigarette producers to discourage smoking coupled with the private sector running ad campaigns on the detrimental effects of smoking [3 marks] Question 3 a. Producers prefer goods that have inelastic demand relationships. Why is that so? [2 marks] b. When the price that Netflix charges rises from $540 to $750 a month, the quantity demanded decreases from 400 million to 250 million subscriptions. Calculate the price elasticity of demand for Netflix charges. Is the demand elastic or inelastic? Would the demand for Netflix be more elastic or less elastic than the demand for overall streaming services? Why? [6 marks] c. When the price of rice falls from $100 to $80, the quantity demanded of flour increases from 10 to 25, the quantity demanded of rice decreases from 20 to 15, and the quantity demanded of beef increases from 18 to 35. i. ii. iii. Question 4 Calculate the cross elasticity of demand for rice with respect to flour. [4 marks] Calculate the cross elasticity of demand for beef with respect to flour. [4 marks] Of what use are these two cross elasticities of demand to the owner of a business that sells rice and beef? [2 marks] a. The supply curve for televisions is given by QS=-4+2P where QS represents the quantity of televisions supplied and P is the price of televisions. The market demand for televisions is given by QD=66-3P where QD is the demand for televisions. Find the equilibrium price and quantity of televisions. [4 marks] b. Using the equations in part (a), calculate the price elasticity of demand for televisions when price changes to $20. [4 marks] c. Describe what will occur if price falls below equilibrium price calculated in part (a). How will this situation will be corrected? [3 marks] Question 5 a. Would you expect marginal utility to rise or fall with additional consumption of a good? Why? [3 marks] b. Tarik consumes bread and sausages. He has decided that his monthly budget will be $1400. Suppose that one bread costs $35, while one sausage costs $40. What is the expression for Tarik's budget constraint? [2 marks] Draw a graph of Tarik's budget line (bread on the y axis). [3 marks] Show how Tarik's budget line changes if the price of sausages increases to $55. [3 marks] i. ii. iii. iv. Suppose Tarik decides to cut his monthly budget in half. Coincidentally, the next time he shops, he learns that bread and sausages are on sale for quarter of the price. Show what happens to Tarik's budget line? [4 marks] TOTAL 70 MARKS