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ECU11021 2023-2024 Topic 1 Linear Functions - Homework and Tutorial Questions

This document provides homework and tutorial questions related to linear functions, demand and supply equilibrium, and national income determination. The questions cover topics such as finding demand and supply functions from data, calculating equilibrium price and quantity, determining marginal propensity to consume and save, and using consumption functions to solve for equilibrium income levels under different economic conditions.

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21 views2 pages

ECU11021 2023-2024 Topic 1 Linear Functions - Homework and Tutorial Questions

This document provides homework and tutorial questions related to linear functions, demand and supply equilibrium, and national income determination. The questions cover topics such as finding demand and supply functions from data, calculating equilibrium price and quantity, determining marginal propensity to consume and save, and using consumption functions to solve for equilibrium income levels under different economic conditions.

Uploaded by

iamkevin721
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ECU11021 Mathematics

Martina Kirchberger

Topic 1: Linear Functions


Homework and Tutorial Questions

Homework Questions

Part A Intuition

1. Give three examples of real-life phenomena that are likely to be well approximated by
a linear function.

Part B Demand and Supply – Market Equilibrium

1. The demand and supply functions of a good are given by:

Qd = 50 – 10P
Qs = 10P

Where P, Qd, and Qs denote price, quantity demanded, and quantity supplied respectively.

(i) Find the inverse demand and supply functions


(ii) Sketch the graphs of the demand and supply functions
(iii) Find the equilibrium price and quantity
(iv) The government imposes a tax of €1 on each good. Describe the effect, if any, on
the demand and supply curves on your diagram and calculate the new equilibrium
price and quantity. What proportion of the tax does the consumer pay?

Part C National Income Determination – An Introduction

2. In a closed economy with no government intervention, the consumption function is


given by:

C = 85 + 0.6Y

and planned investment is 110.

(i) What is the Marginal Propensity to Consume? (Define and determine value)
(ii) Write down the savings function.
(iii) What is the Marginal Propensity to Save? (Define and determine value)
(iv) Calculate the equilibrium level of:
a. National Income
b. Consumption
c. Savings

1
Tutorial Questions

Part A Demand and Supply – Market Equilibrium

1. At a price of €10, the demand for DVDs was 40. When the price increased to €20,
then demand for DVDs fell to 20.

i. Find the linear function which describes this demand behaviour.


ii. Given the supply function Qs = -5 + 3P find the price and quantity at market
equilibrium.
iii. Sketch the graphs of the demand and supply functions and verify your answer.
iv. The government imposes a tax of 2 euro on each good. Describe the effect, if any, on
the demand and supply curves on your diagram and calculate the new equilibrium
price and quantity. What proportion of the tax does the consumer pay?

Part B National Income Determination – An Introduction

2. In a closed economy with no government autonomous investment (I), the


consumption function is given by:

C = 400 + 0.6Y

i. Find the equilibrium level of income when I = 0


ii. Find the equilibrium level of income when I = 60
iii. What impact does this change in equilibrium income have on the level of
consumption in the economy? Why does this make sense?

3. The consumption function in a closed economy is given by:

C = 325 + 0.4Yd

i. Express consumption in terms of Y when direct taxation is levied


a. As a lump sum tax = 200
b. As a proportional income tax of 40%
ii. Find the equilibrium level of income when both taxes are levied, government
expenditure is 100, and investment is 220

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