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QUIZ 1
Section B
Question 1. [2 marks] Suppose in a particular market that the supply curve is given by Qs=10+P
and the market demand curve is given by Qd=30-P+Ps, where Ps is the price of a substitute good.
a) [1 mark] If Ps=10, what are the equilibrium price and quantity in this market?
30-P+10=10+P
P=15
At P=15, Q=25
b) [1 mark] What is the elasticity of supply at the equilibrium price and quantity?
E=dq/dp * p/q = +1 * 15/25 = 0.6
Question 2 [5 marks]
a) [2 marks] Graph one indifference curve for U=min [A, 2B].
b) [3 marks] Graph one indifference curve for U=A0.5B0.5.
Note: If you are running out of time you should at least sketch the general shape of the
indifference curve.
Students should label the level of utility on the indifference curve. They should have at least one
actual point for the first indifference curve, e.g. 1,1 for an indifference curve of U = 1, and 3
actual points for the second indifference curve.
U1:
U2:
Question 3. [3 marks]
a) [1 mark] Charles has $100 to spend on flowers and wine. Flowers cost $10 a bunch and
wine costs $20 a bottle. Sketch his budget constraint, labeling the intercepts.
b) [2 marks] Charles suddenly realizes that he can get two bunches of flowers for free from his
own backyard, before having to buy any. Sketch his new budget constraint, labeling the
intercepts and kink. Bonus mark: Write out Charles’ budget constraint.
For bonus mark, need two equations:
f less than or equal to 2: 20 w = 100
f > 2: 10 (f-2) + 20 w = 100 or 10 f + 20 w = 120