1.True or False
a. If consumer 1 has the demand function x1=1000-2p and consumer 2 has the demand function x2=500-p, then the aggregate demand function for an economy with just these two consumers would be x=1500-3p for p<500.
b. If the price elasticity of demand for a normal good is constant, then a price increase of 10 cents will reduce demand by more if the original price is $ 1 than if the original price is $2.
c. If the supply is perfectly elastic, then an upward shift of the demand curve will lead to a higher price and quantity in equilibrium.
d. Supply and Demand theory shows us that the burden of a sales tax is shared equally by suppliers and demanders whether the tax is collected from the sellers or collected from the buyers.
e. Taxation always comes with a deadweight loss for the society, whether it is levied on producers or consumers.
f. Sellers of products with many substitutes usually lobby for low taxation on those products. Can you explain this statement given what we have studied about market equilibrium and price elasticities?
2. If the demand function for tickets to a play is q=3600-45p, at what price will total revenue be maximized?
(a) 160.
(b) 80.
(c) 40.
(d) 20.
(e) None of the above.
3. The inverse demand function for apples is defined by the equation, p=129-12q, where q is the number of crates that are sold. The inverse supply function is defined by p=3+6q. In the past there was no tax on apples but now a tax of $90 per crate has been imposed. What are the quantities produced before and after the tax was imposed?
(a) 4 crates before and 3 crates after.
(b) 14 crates before and 5 crates after.
(c) 13 crates before and 5 crates after.
(d) 7 crates before and 2 crates after.
(e) None of the above.