# principles of Micro..supply and demand, consumer utility, consumer surplus and marginal analysis…

These questions allow you to work through some supply and demand, consumer utility, consumer surplus and marginal analysis problems and cover topics from the appendix, chapter 1 and chapter 2. There will be a separate assignment for chapter 3. 1. The world market for oil can be modeled with simple supply and demand equations. Suppose demand for oil is approximated by Qd= 80-.4P (that’s point 4P, in case you can’t see the decimal with this font!) and supply is modeled with Qs=55+.6P. The quantities are in millions of barrels. Find equilibrium price and quantity (P and Q). Now, one world supplier decides to withhold 2.5 million barrels in an attempt to change the market price. What is the new supply equation and the new equilibrium quantity and price? 2. Suppose a person has $8.00 to spend, and can only spend it on apples and oranges. Apples cost $.40 each and oranges are $.10 each A. If they only buy apples, how many can they buy? How many oranges if they only buy oranges? B. If they buy 10 apples, how many oranges could they buy? C. If they buy one less apple as in B above, how many oranges could they buy? Is the tradeoff of oranges for apples constant? D. Put the person’s budget constraint into an equation. You can graph this (but don’t need to include it) to see how A,B and C show up on the graph. If you are good at using the draw feature in Excel you can do it pretty easily. 3. A person faces the budget constraint in problem 2. Suppose their preferences for apples and oranges can be expressed this way: Utility = sqrt(A*O), or the square root of apples times oranges. A. If A=5 and O= 80, what will their utility be? B. If A = 10, what value of O would provide the same level of utility as in A? C. If A=20, what value of O would provide the same level of utility as in A? 4. A person consumes housing services (measured in square feet) and all other goods, measured in dollars. So, she consumes H sq ft of housing and C dollars of other goods and uses up all her income. Her budget constraint would be a straight line. If you graphed it, you would put H on the X axis and Other Goods on Y.

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