Author Question: Using the supply and demand equations for wheat above, determine how the equilibrium price and ... (Read 78 times)

V@ndy87 · **on:** Jul 1, 2018

Using the supply and demand equations for wheat above, determine how the equilibrium price and quantity vary with an increase in rainfall(r) holding other factors that influence supply and demand fixed.

How do the equilibrium price and quantity change with an increase in income(I). Answer this comparative statics question using calculus.

Question 2

One aspect of prospect theory is that people tend to

A) be very risk averse to large gains.
B) be very risk averse to losses.
C) love losses more than gains.
D) hate gains regardless of potential losses.

adf223 · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

The partial derivatives of the equilibrium price and quantity with respect to r:
p/r = -.1
Q/r = 10
An incremental increase in rainfall will decrease price by .10 and increase quantity by 10 units of wheat.
The partial derivatives of the equilibrium price and quantity with respect to I:
p/I = -.05
Q/I = 5
An incremental increase in consumer disposable income will decrease price by .05 and increase quantity of wheat by five units.

Answer to Question 2

B