Assignment: Module 2

Submit your output in the Discussion Board not later than August 28, 2021. (Answer all
questions.)

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?
Since it is given that X is a normal good, the demand for good x will decrease since
consumer income decreases. In normal goods, demand and consumer income has a
positive correlation.
B. How will the demand for good Y change if consumer incomes increase?
Since it is given that Y is an inferior good, the demand for good Y will decrease since
consumer income increases. In inferior goods, demand and consumer income are
inversely related.
C. How will the demand for good X change if the price of good Y increases?
The demand for good x will increase if the price for good Y increases, because
consumers would tend to purchase a lower price of goods.

2. Good X is produced in a competitive market using input A. Explain what would happen
to the supply of good X in each of the following situations?
A. The price of input A decreases.
The supply of good X will increase. Since a decrease in price would mean more
supply.
B. An excise tax of $3 is imposed on good X.
The supply of good X will decrease.
C. An ad valorem tax of 7% is imposed on good X.
The supply of good X will decrease.
D. A technological change reduces the cost of producing additional units of good X.
The supply of good X would increase, since the cost of producing supplies
decreased.

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3. Suppose the supply function for product is given by Qs = -30 + 2Px -4Pz
A. How much of product X is produced when Px = $600 and Pz = $60?
Qs = -30 + 2(600) – 4(60) = 930
B. How much of product X is produced when Px = $80 and Pz = $60?
Qs = -30 + 2(80) – 4(60) = -110

C. Suppose Pz = $60. Determine the supply function and the inverse supply function for
good X. Graph the inverse supply function.

Supply Function:

Qs = -30 + 2Px – 4(60)

Qs = – 270 + 2Px

Inverse Supply Function:

270 1
Px =
2 2
+
Qs

1
Px = 135 + Qs
2

GRAPH:

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4. The demand for good X is given by
1 1
Q dx =6,000− Px−Py+ 9 Pz+ M
2 10

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.
Since it is given that the coefficient of Py in the demand equation is -0 < 0. Thus,
good Y and Z are complements for good X.

B. Is X an inferior or a normal good?

Since it is given that the coefficient of M in the demand equation is 0.1 > 0. Thus, X is
a normal good.
C. How many units of goods X will be purchased when Px = $5,230?
1 1
Q dx =6,000− (5,230)−(6,500)+9 (100)+ (70,000)
2 10
d
Q x =4785 units
D. Determine the demand function and the inverse demand function for good X. Graph
the demand curve for good X.

Demand Function:
1 1
Q dx =6,000− Px−6500+ 9(100)+ (70000)
2 10
1
Q dx =6,000− Px−6500+ 900+7000
2
1
Q dx =7400− Px
2
Inverse Demand Function:
1
Q dx =7400− Px
2

7400 1
Q dx = − Px
2 2

1
Q dx =3700− Px
2

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 1 d
Px = 1850 - Q (not sure)
2 x

5. The demand for product X is given by Qd = 300 – 2Px

A. Plot the inverse demand curve.

300 1 1
Qd=300−2 Px 2 Px= − Qd Px=150− Q d
2 2 2

Graph:

B. How much consumer surplus do consumers receive when Px = $45

Px = $45,

QXd = 300 - 2 x 45

QXd = 210

C. How much consumer surplus do consumers receive when Px = $30?

Px = $30
QXd = 300 - 2 x 30
QXd = 240

D. In general, what happens to the level of consumer surplus as the price of a good
falls?
Consumer Surplus would increase since the price of a good falls, more consumers
are willing to pay.

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6. Suppose demand and supply are given by Qd = 60 – P and Qs = P − 20.
A. What are the equilibrium quantity and price in this market?
Demand = Sell
60−P=P−20
60+20=2 P
80 2 P
=
2 2
40 = P

B. Determine quantity demanded, quantity supplied and the magnitude of the surplus
if a price floor of $50 is imposed in this market.
Quantity Demanded:
Qd = 60 – 50
Qd = 10
Quantity Supplies:
Qs = 50 – 20
Qs = 30
Surplus:

C. Determine quantity demanded, quantity supplied and the magnitude of the

shortage if a price ceiling of $32 is imposed in this market.

Quantity Demanded:
Qd = 60 - 32

Quantity Supplies:
Qs =

Surplus:

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