Homework 3Econ 201InstructionsIt is expected that you will either turn in the homework in person in class, or a hardcopy to the instructor’smailbox. No electronic submissions will be...

Homework 3Econ 201InstructionsIt is expected that you will either turn in the homework in person in class, or a hardcopy to the instructor’smailbox. No electronic submissions will be accepted.Question1. The market for milk has a demand curve given by P = 150 ? .03QD .(a) (10 points) What is the price elasticity of demand at QD = 100.(b) (5 points) What is the price elasticity of demand at QD = 1000.(c) (5 points) Using the concept of declining marginal rate of substitution, explain why the elasticitychanges in this way when quantity demanded increases.2. Use the figure (a) (5 points) If each square represents $2 in price and 4 units of quantity, what is the price elasticityof demand at point D?(b) (10 Points) Without doing any calculations, is the price elasticity of demand more or less elasticat point B than point D? Explain your answer.(c) (10 Points) On the demand curve represented by P1 Q1 , at what point is demand unit elastic?(d) (5 Points) Rank the absolute value of the price elasticity of demand at points A-E from mostelastic to least elastic. 1 3. Boris budgets $40/week for his morning coffee with milk. He likes it only if it is prepared with 3 partscoffee, 2 part milk U = min{ 32 M, C}. Coffee costs $2/oz, milk $1/oz.(a) (10 Points) How much coffee and how much milk will Boris buy per week?(b) (10 Points) How much coffee and how much milk will Boris buy per week if the price of coffeerises to $6/oz?(c) (5 Points) Graph the two budget constraints and the two optimal bundles with coffee on thex-axis. On the graph, show how much of the total change is due to the income effect? How muchto the substitution effect?4. Use the figures below to answer the following questions: (a) (10 Points) If the composite good costs $1, what is the price of good x in each of the three budgetlines?(b) (7.5 Points) Draw the income and substitution effects of a price decrease from the most expensiveto the second most expensive on the figure above.(c) (7.5 Points) Draw the income and substitution effects of a price increase from the lease expensiveto the most expensive in the figure below. 2 3