Ten individuals have 100 and identical preferences for picnics, p, and kayak trips, k, where U(p, k) = k0.5p0.5. The price of picnics is 5 and the price per kayak trip is 10. What is the shortage/surplus in the market when the supply of picnics totals 120?
A) There is a surplus of 20.
B) There is a shortage of 20.
C) The market is in equilibrium. Therefore, there is no surplus/shortage.
D) There is not enough information to answer this question.
Question 2
Sandy derives utility from consuming all other goods, g, and clean air (measured by particulate matter removed per m3), a, as measured by the utility function U(g,a) = g0.6a0.4. The price of all other goods is 20 and the price of clean air (abatement) equals 10. Brian is the only other consumer in the market for clean air and demands 10 units of clean air. What is the market demand for clean air?
A) Total market demand is 14 units of clean air.
B) Total market demand is 12 units of clean air.
C) Total market demand is 10 units of clean air.
D) Total market demand is 16 units of clean air.
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