1) In the U.S. it is illegal to buy or sell heroin, yet there is still a market. Suppose the government's main goal is to decrease the amount of heroin consumed and proposes three solutions. For each of these, show what would happen to the market price and quantity for heroin. Briefly discuss your policy recommendation for the government by citing the costs/benefits of each. (For simplicity, assume that heroin sellers and heroin buyers are two separate groups of people)

a. Offer extensive drug rehabilitation programs free-of-charge to heroin users
b. Increase the minimum length of prison sentences for heroin sellers
c. Legalize the sale of heroin

2) Suppose that the equilibrium price of lemons was $.79/lb and the price of limes was $.85/lb. Suppose the supply of lemons suddenly decreased and the price of limes increased (assume that nothing else happened to the lemon or lime market).

a. From the above information, are lemons and limes substitutes or complements? Explain.
b. What happened to the quantity of limes sold after the price change?
c. Do you think lime farmers were happy after this change? Why/why not?
d. Give an example of a good whose price would have likely fallen with the decrease in lemon supply. Why did you choose this good? (There are many appropriate answers for this)

3) Graph the following demand curve and supply curves. Compute the equilibrium price and quantity. What is the amount of consumer surplus (note: the area of a triangle equals ½ * base * height)?
Demand curve: P = 20 - 4*Qd
Supply curve: P = 2 + 2*Qs

Solution Preview

Please see the attachment.

UPDATE FROM OTA:
There is a correction ...

Solution Summary

The solution answers the question(s) below. The supply and demand elasticity for Heroin are determined.

Elasticity
Research has indicated that the demandforheroin is given by the function
q=100p-0.17
a) Find E
b) Is the demandforheroin elastic or inelastic?
Solve this problem, show all steps used to solve the equation, and explain the answer to receive credit for the solution.

Explain the following
Law of demandand law of supply
Factors affecting demandandsupply
Price elasticity of demand
Factors affecting price elasticity of demand

Research has indicated that the demandforheroin is given by the function
q=100p^(-0.17)
a) Find E
b) Is the demandforheroin elastic or inelastic?
Solve this problem, show all steps used to solve the equation, and explain the answer to receive credit for the solution.

Given the same price elasticity of supply, sellers would be able to pass along the smalles portion of a 10%tax on which item?
Beef with a price elasticity of demand of .62
Pork with a price elasticity of demand of .73
Chicken with a price elasticity of demand of .32
Fish with a price elasticity of demand of .12

1. Determine the price elasticity of demand at each quantity demanded using the formula: Percentage change in quantity demanded = (Q2-Q1)/Q1 divided by percentage change in price = (P2-P1)/P1
b. Redo exercise 1a using price changes of $10 rather than $5
c. Plot the price and quantity date given in the demand schedule. Indi

Suppose the price of apples rises from $3.50 a pound to $4.00 and your consumption of apples drops from 30 pounds of apples a month to 20 pounds of apples. Calculate your price elasticity of demand of apples. What can you say about your price elasticity of demand of apples? Is it Elastic, Inelastic, or Unitary Elastic? Be sure t

The demandfor company X product is given by Q(x) = 12 - 3P(x)+ 4P (y)
Suppose good X sells for $3.00 per unit and good Y sells for $1.50 per unit.
a. Calculate the cross-price elasticity of demand between goods X and Y at the given prices.
b. Are goods X and Y substitutes or complements?
c. What is the own price elastici

What impact does Afghanistan have on the world's supply of heroin? What does heroin production have to do with the economy of Afghanistan? How is heroin production tied to terrorism? What would you propose as a solution to this problem?

Consider a service that you buy frequently. (Can use pedicure 2 times per month at $50 for graph and calculation)
a. Suppose that the price was 5% lower and all other factors do not change. How much more would you buy each year?
b. Using this information, calculate the own-price elasticity of your demand.