Concordia University

Department of Economics
Econ 301, Summer 2020 Assignment 2

Due: June 8, 2020, by 5:00 p.m. in Moodle. Please show all the necessary calculations and
explanations that lead to your answer. Provide your answers in the order the problems are given.
Clearly identify which question you are answering [for example, for Q#1, use heading: Ans for
Q1. Then type 1.1 for answer for part 1.1, type 1.2, etc.] No need to copy questions in your
answers.

• Do not violate academic integrity by copying someone else’s answer. If you are working
on any assignment together, submit as a group.

• If you submit the assignment in group, you have to have a group leader to submit the
assignment only one time and the rest of the group members have to submit a file with
just one line mentioning their assignment is submitted as a group with the name of the
group members on the file.

• Assignment format requirements: The files must be submitted in one pdf file. Please
keep the same order of the questions in your answer sheet. You must answer on white
blank paper without lines. Please answer in legible form with pen. Please note that it is
your responsibility to ensure that your assignment is readable for the marker.

• Do not forget to keep your answer to-the-point and relevant to the respective question.
[Providing irrelevant and/or incorrect details could reduce your marks].

• Do not forget double check everything before time is up.

1. Suppose Mike’s utility function is u(x,y)=2lnx +lny.

1. Derive the demand functions.

2. Is y a Normal good?

3. Is x an ordinary good?

4. Assume the price of x is initially 1 dollar, and the price of y is also 1

dollar. Given that income is 9, if the price of x doubles to 2 dollars,
decompose the change in consumption of x into substitution effect and
income effect. Illustrate your answer with a graph.

5. Now, given the price increase in part 4, compute the Compensating

variation (CV) and the Equivalent Variation (EV).

2. Suppose that the demand function is D(p) = 600 - 3p and the supply function
is S(p) = 300 + 3p.

1. Derive the equilibrium price and quantity.

2. What is the change in consumer's surplus after an increase in the price of

50 dollars?

3. Now suppose South Korea is exporting phone to United States and the
demand function for Korean phones in the United States is the same as
above (in thousands of phones), where p is the price of Korean phones in
hundreds of dollars. If the supply curve is horizontally fixed at 60 dollars,
find the equilibrium number of Korean phones sold in the United States
and what is the price of Korean phones in total?

4. Now, suppose that the United States imposes an import tax on Korean
phones which is 20 dollars for every Korean phone, due to huge pressure
from American phone manufacturers. Find the amount of Phones will be
sold in the US now. At what price they will be sold? Draw supply and
demand curves for both before and after tax scenarios.
 5. How much revenue will the U.S government collect by this tariff?

6. Suppose that instead of US tax on the Korean phones, the Korean

government decides to impose an export restriction on their phone
exports. They agree to sell only 360 Korean phones in US. If the
Koreans know the American demand curve, they will sell their phones at
what price in US?

7. If the Korean government is selling export licenses for each Korean

phone to each Korean manufacturer and there are 360 export licenses,
how much will a Korean firm be willing to pay the Korean government
for an export license?

8. Why might the Korean government choose the choice in part “7” to the
US taxation scenario?

3. Jen, Eric, and Kurt are all buyers of chain saws. Jen’s demand function is
Qj = 520-13p; Eric’s demand function is Qe = 40-p; and Kurt’s demand
function is Qk = 200-5p: Together, these three constitute the entire demand
for chainsaws. At what price will the price elasticity of market demand be -1?
(Be sure to explain your answer).

4. Indicate whether they have increasing, decreasing or constant returns to

scale:

1. F(x,y) = xy
2. F(x,y) = x1/3y1/3
3. F(x,y) = x + y

5. Initially, electricity is sold in California and in other states at a single price.

Now suppose that California restricts the quantity of electricity its citizens
can buy. Show what happens to the price of electricity and the quantities sold
in California and elsewhere.