[4 points] we have done numerical examples with respect to relatively straight forward markets. But what if the function for demand and supply were more explicit? That they also made room to control for some specific variables? Consider the following demand and supply relationship in the market for gold balls:

Qd=90−2P−2T

and

Qs=−9+5P−2.5R

, where T is the price of titanium, a metal used to make gold clubs, and R is the price of rubber.

If R =2 and T =10, calculate the equilibrium price and quantity of gold balls. (Tip: the demand and supply curve given are functions. Which means that they are general cases, you need information on the situation before you can know what to make of it, in this care you need R and T, which are given as R=2 and T =10)

If the price of R increased to 4 (from 2), would that be a demand or supply shift? Or nothing? Explain and find the new equilibrium if waranted.

[4 points] the demand curve is given as

Q=350−7P

. What is the elasticity of demand at P=20? (TIP: to calculate this, you need a second point, increase the price by 1% and find the New quantity and you will now have 2 coordinates)

[2 points] In a market, what are equilibrums and how to we find them?

[4 points] Jodi prefers basket A to basket B, she prefers basket A to basket C and she prefers basket C to

basket B. Based on this information, can you say whether Jodi’s preferences are complete? Transitive?

Monotonic (More is Better)? Explain.

[3 points] Given the utility function: U(x,y) =

x13y23

, where x and y are goods and 1/3 and 2/3 are constants,

MUx=13x−23y23

and

MUy=23x13y−13

Obtain the Marginal Rate of Substitution MRSxy.

In your own words (non technical) what does the MRS for this utility function tell us?

Graph 2 indifference curves U=10 and U =14, (with at least 3 bundles for each)

[2 points] Given the utility function: U(x,y) = min{4x, 1/2y}, graph three indifference curves for utility level

U=4, U=8 and U=16. Make sure all relevant information if on the graph.

[1 points] More is Better implies that indifference curves have a negative slope.” Why is this statement