1. Given the following price elasticities, answer the questions (parts "a" and "b") that follow:
\begin{itemize}
\item Own price elasticity of beef demand = -0.56
\item Own price elasticity of beef supply = 0.15
\item Own price elasticity of pork demand with respect to pork prices = -0.35
\item Cross-price elasticity of beef demand with respect to pork prices = 0.10
\item Cross-price elasticity of pork demand with respect to beef prices = 0.07
\item Cross-price elasticity of beef supply with respect to all other meats (poultry, fish, pork) prices = 0.20
\end{itemize}
a. Since the early 2000s, cattle producers have been required to keep detailed records on all cattle they buy and sell for tracing purposes in the event of an outbreak of a cattle disease (like BSE). Agricultural economists have estimated that this has raised the marginal cost of beef production by 8% of the beef prices. That is, the extra costs of record keeping and reporting have decreased the per cwt price received by suppliers by 8%.
Using an equilibrium displacement model, calculate how beef prices and quantities were expected to respond to the animal reporting regulations. For the purposes of this question assume there are no changes in any other aspect of demand (i.e., consumer choice, incomes) or supply (i.e., technology changes, trade agreements). (17 points)
b. Now, assume a new pork production technology is expected to reduce the costs of producing pork, and, thereby, reduce the price of pork by 25%. Using an equilibrium displacement model, estimate the impact of this new technology on beef prices and beef production levels. (16 points)
