Suppose that the demand function for corn is: Qd = 20 – 4 Pcorn + 8 Ppotatos –

1. Suppose that the demand function for corn is: Qd = 20 – 4 Pcorn + 8 Ppotatos – 0.50Pbutter. Potatoes cost $0.25 per pound and butter costs $2 per pound. At what pricewill consumers demand 8 billion bushels per year? How does your answer changeif the price of butter rises to $4 per pound?2. Suppose the demand function for corn is Qd = 20 – 2 Pcorn and the supply functionis Qs = 1.6 Pcorn – 7. What is the equilibrium price of corn? What is the amount ofcorn bought and sold?3. Consider a linear demand function for oranges given as Qd = 431.6 – 80.7 P. Atwhat price will the total expenditure on oranges be largest? (Hint: totalexpenditure is maximized where price elasticity is –1.)4. Suppose the demand function for corn is Qd = 15 – 2 Pcorn and the supply functionis Qs = 5 Pcorn – 6 (same as in the worked out problem 2.2). Suppose thegovernment needs to buy 3.5 billion bushels of corn for a third-world faminerelief program. What effect will the purchase have on the equilibrium price ofcorn? How will it change the amount of corn that consumers buy?(Hint: The Government’s action will shift the demand curve to the right by 3.5.That is, at every price point the new demand is QdNEW = Qd + 3.5. The first step isto find out the formula for the shifted demand curve.)5. If the U.S. government were to ban imports of Canadian beef for reasonsunrelated to health concerns, what would be the effect on the price of beef in theUnited States? How would the typical American’s diet change? What if the bansuggested to consumers that there might be health risks associated with beef?