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Assignment#2

This document contains 8 questions related to economics concepts such as linear demand curves, price elasticity of demand, cross-price elasticity of demand, and the impact of reimbursement on price elasticity. The questions cover calculating choke prices and elasticity from demand curves, determining if goods are substitutes or complements, plotting demand curves, and predicting the sign of cross-price elasticities.

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Mavi Sang-olan
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© Attribution Non-Commercial (BY-NC)
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Download as DOC, PDF, TXT or read online on Scribd
1K views

Assignment#2

This document contains 8 questions related to economics concepts such as linear demand curves, price elasticity of demand, cross-price elasticity of demand, and the impact of reimbursement on price elasticity. The questions cover calculating choke prices and elasticity from demand curves, determining if goods are substitutes or complements, plotting demand curves, and predicting the sign of cross-price elasticities.

Uploaded by

Mavi Sang-olan
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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ASSIGNMENT #2 ECON201k

1. A linear demand curve has the equation Q = 50 100P. What is the choke price? 2. Explain why we might expect the price elasticity of demand for speedboats to be more negative than the price elasticity of demand for light bulbs. 3. The demand for beer in Japan is given by the following equation: Qd = 700 2P PN + 0.1I, where P is the price of beer, PN is the price of nuts, and I is average consumer income. a) What happens to the demand for beer when the price of nuts goes up? Are beer and nuts demand substitutes or demand complements? b) What happens to the demand for beer when average consumer income rises? c) Graph the demand curve for beer when PN = 100 and I = 10, 000. 4. Suppose the demand curve in a particular market is given by Q = 5 0.5P. a) Plot this curve in a graph. b) At what price will demand be unitary elastic? 5. Consider a linear demand curve, Q = 350 7P. a) Derive the inverse demand curve corresponding to this demand curve. b) What is the choke price? c) What is the price elasticity of demand at P = 50? 6. Suppose that the quantity of steel demanded in France is given by Qs = 100 2Ps + 0.5Y + 0.2PA, where Qs is the quantity of steel demanded per year, Ps is the market price of steel, Y is real GDP in France, and PA is the market price of aluminum. In 2011, Ps = 10, Y = 40, and PA = 100. How much steel will be demanded in 2011? What is the price elasticity of demand, given market conditions in 2011? 7. For the following pairs of goods, would you expect the cross-price elasticity of demand to be positive, negative, or zero? Briefly explain your answers. a) Tylenol and Advil b) DVD players and VCRs c) Hot dogs and buns 8. Many business travelers receive reimbursement from their companies when they travel by air, whereas vacation travelers typically pay for their trips out of their own pockets. How would this affect the comparison between the price elasticity of demand for air travel for business travelers versus vacation travelers?

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