ECON 101 KFUPM The Market for Ready Mixed Concrete in Dammam Question
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ECON101 HW2
Deadline: Sunday October 3rd at 11:59 PM
Name:
Student ID:
Please submit your solution on Blackboard
Please show all your steps and write legibly
Elasticity (20 points Total):
Question 1 (12 points): Consider the market for ready-mixed concrete in Dammam (similar to HW1).
The demand curve is given by:
???? = 1023 ? 7?? + 0.007 ??
Where:
?? ?? is the quantity demanded for ready-mixed concrete in thousand cubic meters per month.
?? is the average income in Dammam per month.
?? is the price of ready-mixed concrete.
The supply curve is
?? ?? = 3?? ? 0.3 ???? ? 45
Where:
?? ?? is the quantity supplied for ready-mixed concrete in thousand cubic meters per month.
???? is the price of 1 kilogram of cement.
(a) (3 points) If the average income in Dammam is ?? = SAR 11,000, what is the price elasticity of
demand of ready-mixed concrete (???? ) at ?? = SAR 118 ? (Show your steps and write your interpretation of
the elasticity)
???? =
.
Interpretation:
Page 1 of 5
(b) (3 points) If the price of ready-mixed concrete is ?? = SAR 118, what is the income elasticity of
demand for ready-mixed concrete (???? ) in Dammam at income ?? = SAR 11,000 ? (Show your steps and
write your interpretation of the elasticity)
???? =
.
Interpretation:
(c) (3 points) If the price of cement ???? = 30, what is the price elasticity of supply(???? ) of ready-mixed
concrete at ?? = SAR 118? (Show your steps and write your interpretation of the elasticity)
???? =
.
Interpretation:
Page 2 of 5
(d) (3 points) If the price or ready-mixed concrete ?? = SAR 118, what is the cross-price elasticity of
supply of ready-mixed concrete (?????? ) at the price of cement is ???? = 30? (Show your steps and write your
interpretation of the elasticity)
?????? =
.
Interpretation:
Question 2 (8 points): The purpose of this exercise is to understand how total spending on a good is
related to the price elasticity of demand. You will also show in this exercise that the elasticity on a
linear demand curve changes depending on the point where it is measured.
If the demand for product A is given by:
???? = 200 ? 200??
(6 points ½ each) Fill in the table below:
??
????
Total
Spending
Price elasticity
of demand (??)
At this price, demand is:
0.25
Elastic / inelastic / unit-elastic
0.5
Elastic / inelastic / unit-elastic
0.75
Elastic / inelastic / unit-elastic
(2 points 2/3 each) select the right answer:
(a) When demand is elastic, a fall in price ( increases / decreases / does not change ) the total
spending on the good.
(b) When demand is inelastic, a fall in price ( increases / decreases / does not change ) the total
spending on the good.
(c) When demand is unit-elastic, a fall in price ( increases / decreases / does not change ) the
total spending on the good.
Page 3 of 5
Consumer Choice (20 points Total):
Question 3 (16 points): Mohammed has SAR 65 to spend per week on movie tickets and playing
badminton. The price of a movie ticket is SAR 20, and the price of a badminton game is is SAR 15.
(a) Denote M and B as the number of movie tickets and badminton games, respectively.
The budget constraint equation is:
(b) (8 points 1/3 each) Mohammeds utility schedule is as below. Fill in the table and answer the
questions that follows:
Movies /
Total
Marginal
Marginal
Badminton
Total
Marginal
Marginal Utility
Week
Utility
Utility
Utility per $
games / Week
Utility
Utility
per $ (MUB /
(TUM)
(MUM)
(MUM / PM)
(TUB)
(MUB)
PB)
1
12
1
20
2
22
2
32
3
28
3
40
4
32
4
46
5
34
5
48.5
6
34
6
48.5
(c) (2 points) The optimal consumption bundle is
.
(d) (2 points) The combined total utility level is
.
(e) (4 points) Suppose that price of movie tickets increase. How does it affect Mohammeds choices?
MUM/PM would
MUB/PB would
increase/decrease/not affected
increase/decrease/not affected
Mohammed would spend more on
.
.
and less on
Page 4 of 5
.
Question 5 (4 points): Suppose Waleed is deciding how to allocate his spending on gasoline and food. If
Waleeds budget is 120, the price of gasoline is 40, and the price of food is 30:
Step 1: Draw Waleeds bedget line.
Step 2: draw indifference curves (similar to indifference curves in the book), with one curve touching the
budget line at a single equilibrium point. Label this point ??0 .
Step 3: Suppose (holding everything else constant) that the price of gasoline decreased to 30. Draw the
new budget line and label the new equilibrium ??2 .
Page 5 of 5
Purchase answer to see full
attachment
Tags:
Mixed Concrete in Dammam
the price elasticity of
demand
concrete in thousand cubic meters
price of 1 kilogram of cement
the price elasticity of supply
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