Question-4: Suppose the quantity demanded of good ( Q d ) depends only on the pr
ID: 1192030 • Letter: Q
Question
Question-4:
Suppose the quantity demanded of good (Qd) depends only on the price of the good (P), monthly income (M), and the price of a related good R (PR):
Qd = 180 – 10P – 0.2M + 10 PR
1- Construct the demand curve for the good when M = $1,000 and PR = $5?
2- Interpret the intercept and slope parameters for the demand equation in part a?
3- Let income decrease from $1000 to $950. Construct the new demand curve?
4- Let the price of good R (PR) increase from $5 to $6 while income remains constant at $ 950, construct the new demand curve. What is the nature of Good R, either it is Substitute or Complement?
5- For the demand curve in part d, find the equilibrium price and quantity when supply function is as under;
Qs = - 10 + 10P
Explanation / Answer
Qd = 180 – 10P – 0.2M + 10 PR
1- Construct the demand curve for the good when M = $1,000 and PR = $5?
Answer:
Qd = 180 – 10P – 0.2(1,000) + 10(5)
Qd=180 - 10P - 200 +50
Qd=30-10P
2- Interpret the intercept and slope parameters for the demand equation in part a?
Answer: 30 Intercept and slope of pparameter is -10
3- Let income decrease from $1000 to $950. Construct the new demand curve?
Answer: Qd = 180 – 10P – 0.2(950) + 10(5)
= 180 - 10P -190 +50
=40 -10P
4- Let the price of good R (PR) increase from $5 to $6 while income remains constant at $ 950, construct the new demand curve. What is the nature of Good R, either it is Substitute or Complement?
Answer: Qd = 180 – 10P – 0.2(950) + 10(6)
=180 - 10P -190+60
=50-10P
Cross elasticity of demand is positive. hence this case of substitute ( 10Pr)
5- For the demand curve in part d, find the equilibrium price and quantity when supply function is as under;
Answer 50-10P = - 10 + 10P
60 = 20P
P=3
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