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Ms6404 Assignment 2 Answer

This document contains an economics assignment that analyzes the demand and supply of good X. It includes: 1) Good X is a normal good since demand increases with income. It is a substitute for good R since demand for X increases when the price of R rises. 2) Given income of $40,000 and price of R of $20, the equilibrium price for X is $100 and quantity is 400 units. 3) If income rises to $52,000, the new equilibrium price will be $110.83 and quantity 508 units. If the price of R falls to $14, the equilibrium price and quantity of X will fall to $96.50 and 365 units respectively.

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2K views

Ms6404 Assignment 2 Answer

This document contains an economics assignment that analyzes the demand and supply of good X. It includes: 1) Good X is a normal good since demand increases with income. It is a substitute for good R since demand for X increases when the price of R rises. 2) Given income of $40,000 and price of R of $20, the equilibrium price for X is $100 and quantity is 400 units. 3) If income rises to $52,000, the new equilibrium price will be $110.83 and quantity 508 units. If the price of R falls to $14, the equilibrium price and quantity of X will fall to $96.50 and 365 units respectively.

Uploaded by

SamJabry
Copyright
© © All Rights Reserved
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MS 6404 Managerial Economics

Student ID :
Saelim

5772006

Student Name: Ausara

Assignment 2
Suppose that the generalized demand function for good X is

Qd 60 2 Px 0.01M 7 Pr
Where

Qd=quantity of X demanded,

Px = price of X,
M=average consumer income,
Pr=price of related good R
a. Is good X normal or inferior? Explain?
Answer: The good X is normal good because the relationship between
demand of good X and income is positive, as shown in the equation
+0.01M. Therefore, if the income of consumer increase, the demand of
the good X will also increase.
b. Are goods X and R substitutes or complements?
Answer: The good X and R are substitutes, as it has shown in the
equation as +7Pr. The positive relationship of demand of good X with the
price of good R explained that, if the price of good R has increase, the
demand of good X will be increased.
Suppose that M=$40,000 and Pr=$20
Given that the supply function is Qs=-600+10P
c. What is the demand function for good X?
Answer:
Qd
=
60 2Px + 0.01M +7Pr
Qd
=
60 2Px + 0.01(40,000) + 7(20)
Qd
=
60 2Px + 400 + 140
Qd
=
600 2Px
d. What are the equilibrium price and quantity?
Answer:
Qd
=
Qs
600 2Px
=
-600 +10Px
1200
=
12Px
Px
=
100
The equilibrium price is $100.
Qd
=
600- 2(100)
Qd
=
400
Qs
=
-600 + 10(100)
Qs
=
400
The equilibrium quantity is 400.

e. What happen if income increases to $52,000?


Answer: If the income increases to $52,000, the equilibrium price will
be increased to $110.83 and the equilibrium demand will also
increase to 508 units. As per the theory of change in demand due to
income increase causes demand curve to shift rightward. Moreover, good
X is normal good which means if the income of consumers increase, the
equilibrium price and quantity will have directly impact. Therefore, when
demand raised up, the price will goes up too.
f.

What happen if price of good R decreases to $14?


Answer: If Price of good R decrease to $14, the equilibrium price will
drop to $96.5 and equilibrium demand will also drop to 365 units.
Because good X and R are substitute, once the price of good R drops, the
demand of good X will also decrease in the positive impact.

g. What happen when supply shift to Qs= -360+10Px?


Answer: if the Qs = -360 + 10Px , the new equilibrium price will be
$80 and quantity supply will be 440 units. Which means the supply
increase and shift the curve to the rightward, causes the price decrease
from $100 to $80 but the demand of the product will be increased from
400 to 440 units.

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