1. Suppose that the demand function for corn is: Qd = 20 - 4 Pcorn + 8 Ppotatos - 0.50 Pbutter. Potatoes cost $0.25 per pound and butter costs $2 per pound. At what price will consumers demand 8 billion bushels per year? How does your answer change if the price of butter rises to $4 per pound?
2. Suppose the demand function for corn is Qd = 20 - 2 Pcorn and the supply function is Qs = 1.6 Pcorn - 7. What is the equilibrium price of corn? What is the amount of corn bought and sold?
3. Consider a linear demand function for oranges given as Qd = 431.6 - 80.7 P. At what price will the total expenditure on oranges be largest? (Hint: total expenditure is maximized where price elasticity is -1.)
4. Suppose the demand function for corn is Qd = 15 - 2 Pcorn and the supply function is Qs = 5 Pcorn - 6 (same as in the worked out problem 2.2). Suppose the government needs to buy 3.5 billion bushels of corn for a third-world famine relief program. What effect will the purchase have on the equilibrium price of corn? How will it change the amount of corn that consumers buy?
(Hint: The Government's action will shift the demand curve to the right by 3.5.
That is, at every price point the new demand is QdNEW = Qd + 3.5. The first step is to find out the formula for the shifted demand curve.)
5. If the U.S. government were to ban imports of Canadian beef for reasons unrelated to health concerns, what would be the effect on the price of beef in the United States? How would the typical American's diet change? What if the ban suggested to consumers that there might be health risks associated with beef?