Consider the following demand and supply functions

Consider the following demand and supply functions

Subject: Economics    / General Economics
Question
1. Consider the following demand and supply functions: Qd = 200 – 4P and Qs = P.
a. Graph the supply and demand functions in the typical manner with price (P) on the
Y-axis and quantity on the X-axis, showing their intercepts.
b. What is the slope of each line?
c. What is the equilibrium price and quantity?
d. Calculate the consumer surplus and shade the consumer surplus area on the graph.
e. Calculate the producer surplus and shade the producer surplus area on the graph.
f. Calculate the price elasticity of demand for a $10 increase in price from the initial
equilibrium price. Is demand price elastic or inelastic for this good?
2. Using a demand-and-supply graph, show and explain the effect on equilibrium market price
and quantity for health care of the following:
a. Pollution in cities is reduced due to new regulations from the EPA on CO2 emissions.
b. Immigrations laws in the US open up and we have a significant number of highly
trained doctors and nurses enter the country. As a result of the new laws, we also
have a significant number of low-income individuals enter the country who did not
previously received adequate health care in their home country.
c. Suppose that the CDC funds a massive advertising campaign that informs on the
harmful chemicals in e-cigarettes.
3. Julia enjoys ice skating and biking. The table below shows the total utility (TU) she gets from
each activity:
Hours per
day
1
2
3
4
5
6 TU from ice
skating
120
220
300
360
400
412 MU from ice
skating TU from
biking
80
100
116
130
140
148 MU from
biking a. Fill in the marginal utility (MU) from each additional hour of ice skating and biking on
the table above. Does the marginal utility for each activity make sense? Why or why
not?
b. Suppose Julia has a $60 budget and unlimited leisure time. Ice skating costs
$10/hour and a bike rental is $5/hour. In order to maximize her total utility, how
much time does Julia spend on ice skating and biking? Show your work. (HINT: think
about how much it costs to buy additional utility.)
4. Assess the impact of the following on the marginal efficiency of capital and related optimal
health stock (include a graph in your explanation):
a. An increase in the depreciation rate of aging
b. An increase in level of education 5. An important distinction in health insurance is between the list price (PL) and out-ofpocket price (PP) of a medical good or service. The list price is the official price that the
provider charges the insurance company, while the out-of-pocket price is the price that the
insurance customer faces. Sometimes, the out-of-pocket price depends on the list price.
Suppose that the demand for medical services is as follows:
Qd = 80 ? 2PP
where PP is the out-of-pocket price an individual actually faces. Assume that this service
has a list price of list price of PL = $20. Draw the demand curve and show the amount
of medical services that will be demanded with no insurance. Compare that to the
amount of services that would be consumed if the individual was fully insured. Is the
amount of services consumed under full insurance efficient? Explain why or why not.