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problem 1

Uploaded by

sgqcvb7kh2
Copyright
© © All Rights Reserved
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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

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