For Question 1 a-p refer to below statement and demand and supply functions.

Q1[100 points] Suppose that demand and supply curves for avocado in Brooklyn are as the followings:

Qd = 54 12P + 2 Pt + 0.004 Y

Qs = 12 + 6P - 60 Pf

where

Qd and Qs are quantities demanded and supplied in tons respectively, and

P is the price of avocado in dollars per pound,

Pt is the price of tomatoes in dollars per pound

Pf is the price of fertilizer in dollars per pound.

Y is the average monthly income of the avocado lovers/consumers

Suppose that Pt = $3.00 per pound, Pf = $0.50 per pound and Y = $3000.

a) If price elasticity of demand for avocado at price P* is equal to -6/9, how much is P*? Explain.

b) What is quantity demanded at price P* at which price elasticity of demand for avocado equals -6/9? Explain.

c) If price elasticity of supply for avocado at price P* is equal to 2.5, how much is P*?

d) What is quantity supplied at price P* at which price elasticity of supply for avocado equals 2.5? Explain.

e) What is market clearing equilibrium price and quantity in Brooklyn avocado market? Explain.

f) While the avocado market is in equilibrium if avocado sellers decide to raise their prices by 2% above the market equilibrium price, what will happen to the percent change in quantity demanded? Explain.

g) What is cross price elasticity of demand for avocado with respect to the price of tomatoes at the market clearing equilibrium price and quantity in Brooklyn avocado market? Explain. Also, based on your results explain in detail what type of good tomatoes must be in Brooklyn.

h) If the price of tomatoes increase how would you explain the change in demand for avocados with substitution and income effects? Explain in detail.

i) What is income elasticity of demand for avocado at the market clearing equilibrium price and quantity in Brooklyn avocado market? Explain. Also, based on your results explain what type of good tomatoes must be in Brooklyn.

j) Explain why as the price of avocado increases the demand for avocados becomes relatively more elastic? Also explain why as the price of avocado decreases the demand for avocados becomes relatively less elastic?

k) What is the consumer surplus at the market clearing equilibrium price and quantity? Calculate and show it on a diagram.

l) What is the producer surplus at the market clearing equilibrium price and quantity? Calculate and show it on a diagram.

m) Suppose that in order to support the avocado producers and sellers the official local authorities in Brooklyn set the price of avocado at $5.50 per pound. Is this an example for price ceiling or price floor policy? Show how producer and consumer producer surplus would change with this intervention. Also calculate the total deadweight loss and show it on a diagram.

n) Is this intervention a bad policy, implying a loss of economic efficiency? Discuss in detail.

o) Now suppose that in order to support consumers the official local authorities in Brooklyn set the price of avocado at $4.00 per pound. Is this an example for price ceiling or price floor policy? Show how producer and consumer producer surplus would change with this intervention. Also calculate the total deadweight loss and show it on a diagram.

p) Is this intervention a good policy, implying an increase of economic efficiency? Discuss in detail.