Scribd
Upload
25 views1 page

Problem 1

Uploaded by

sgqcvb7kh2
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
25 views1 page

Problem 1

Uploaded by

sgqcvb7kh2
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

1. The X-Corporation produces a good (called X) that is a normal good.

Its competitor, Y-
Corp., makes a substitute good that it markets under the name Y. Good Y is an inferior good.
a. How will the demand for good X change if consumer incomes decrease? decrease
b. How will the demand for good Y change if consumer incomes increase? decrease
c. How will the demand for good X change if the price of good Y increases? increase

2. Suppose the supply function for product X is given by Qxs = −30 + 2Px − 4Pz.
a. How much of product X is produced when Px = $600 and Pz = $60? 930
b. How much of product X is produced when Px = $80 and Pz = $60? -110
c. Suppose Pz = $60. Determine the supply function and inverse supply function for good X.
Graph the inverse supply function. Qxs = −270 + 2Px

3. The demand for good X is given by Qxd = 6,000 –(1/2) Px − Py + 9Pz + 1/10 M
Research shows that the prices of related goods are given by Py = $6,500 and Pz = $100,
while the average income of individuals consuming this product is M = $70,000.
a. Indicate whether goods Y and Z are substitutes or complements for good X. Y is
complementary and Z is substitute.
b. Is X an inferior or a normal good? Normal
c. How many units of good X will be purchased when Px = $5,230? 4785
d. Determine the demand function and inverse demand function for good X. Graph the
demand curve for good X. Qxd = 7400 –(1/2) Px, Px = 3700 – (1/2)Qxd

4. Suppose demand and supply are given by: Qxd = 14 – (1/2) Px and Qxs = (1/4) Px − 1
a. Determine the equilibrium price and quantity. Show the equilibrium graphically. Px = 20,
Qx = 4
b. Suppose a $12 unit or specific tax is imposed on the good. Determine the new equilibrium
price and quantity. Demand function: Px = 7 – 0.5Qx, supply function: Px = 4 + 4Qx.
After tax supply function becomes, Px = 16 + 4Qx. Equilibrium P and Q are 6 & 2,
respectively.
c. How much tax revenue does the government earn with the $12 tax? $24

You might also like