Suppose a consumer has preferences between two goods that are perfect
substitutes. Can you change prices in such a way that the entire demand
response is due to income effect? Explain your answer. (10%)
Suppose that by some miracle the number of hours in the day increased from
24 to 30 hours. How would this affect the budget constraint? Explain your
answer. (10%)
A consumer, who is initially a lender, remains a lender after a rise in interest
rates. Is this consumer better off or worse off after the changes in interest rates?
Explain your answer. (10%)
What is the effect of a tax in a market with a horizontal supply curve What is
the effect of a subsidy in a market with a vertical supply curve? Explain your
answer. (10%)
The demand curve facing the monopolist has a constant elasticity of ε = −3 . If
the government imposes a quantity tax of $2 per unit of output, how much will
the price rise? (10%)
Consider a Cournot market with n identical firms. Suppose that the inverse
market demand is p = a − bQ and the marginal cost is constant at c . Find
the equilibrium price, output and profit. (10%)
Suppose that the inverse market demand curve is given by p =100 − 2Q. Two
firms operate in the market; firm 1 acts as a Stackelberg leader and firm 2
behaves as a follower. Each firm has a constant marginal cost $4. Find the
equilibrium output and profit for firm 1 and firm 2 respectively. (10%)
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