For question (1), answer one of the options below:
a) Consider the market for widgets (an inferior good). Suppose that we see an increase in household incomes and, at the same time, higher labor costs for widget producers. What is likely to happen to the equilibrium price and equilibrium quantity in this market? Provide relevant details.
b) In many crowded urban neighborhoods, rents can be quite costly. One way to deal with this is to establish rent controls – i.e., capping the rent at a level that can be well below the “equilibrium” level. Is this a fairly easy way to provide affordable, quality housing in such neighborhoods? Elucidate.
2) For question 2), answer two of the options below:
a) What is the relevance of the price elasticity of demand (Ed) and the price elasticity of supply (Es)? Explain.
b) How does the short-run price elasticity of demand for gasoline compare to its long-run price elasticity of demand? Elucidate. {Useful info is contained on page 110 in Chapter 5 of the text.}
c) For a linear demand curve, the slope (rise/run, or change in price/change in quantity demanded, or ?P / ? Qd) remains constant. Does this mean that the price elasticity of demand also remains constant along this same demand curve? Elucidate. d) Discuss the relevance of the income elasticity of demand and the cross-price elasticity of demand.
3) The equation for a demand curve is P = 48 – 3Q. Calculate the elasticity when moving from a quantity of 5 to a quantity of 6? Show your work. Based on your answer, is this segment of the demand curve elastic or inelastic?