Homework Assignment #1
Problems 1 and 2
Due 4-22-2010 hybrid
4-23-2010 non-hybrid
Problems #1 and 2
Multi-part
In the summer of 2007 OPEC, the Organization of Petroleum Exporting
Countries, decreased the cartel’s production quota, resulting in an increase in
the price of oil.
1. Show the impact of the increase in the price of oil on the market for
automobile gasoline.
a. Which curve, demand or supply, shifts and which factor caused it to shift?
b. What would be the impact on the market for more fuel efficient cars (and
why) like the Prius (a hybrid)? The impact on the market for less fuel efficient
cars (like Humvees) and why?
2. What would be the impact of the oil price increase on the market for
alternative fuels, such as biodiesel?
Problem 2
Compute and Fill-In Missing Data
Price
Indiv 1
Indiv 2
Indiv 3
Indiv 4
Market Demand
Total Revenue
Marginal Revenue
$10
1
0
0
0
1
$10
$10
$9
2
0
1
1
4
$36
$26
$8
3
1
2
1
$7
4
1
3
2
$6
5
2
4
2
$5
6
2
5
3
$4
7
3
6
3
$3
8
3
6
4
$2
9
4
6
4
23
$46
$1
10
4
6
5
25
$25
($21)
Problem #3
• Compute the market demand curve for the 4
individuals in this market
– Market demand = sum of individual demand at each
price offered
• Calculate total revenues at each price
– Total Revenue = Price x Quantity Demanded at that
Price
• TR(P) = P x Q(P)
• Calculate the Marginal Revenue at each price
– Marginal Revenue = Change in Total Revenue
• E.g., MR($9) = TR($9) – TR($10)
• Calculate the own-price demand elasticity
– The percentage change in quantity demanded with