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# h4 - The Colorado College Department of Economics and...

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1 The Colorado College Department of Economics and Business Block 7 Econ 207 HW 4. 1. The market demand for potatoes is given by Q=1000 +0.3I-300P+299P’ where Q = annual demand in pounds; I = average income in dollars per year; P = price of potatoes in cents per pound; P’ = price of rice in cents per pound. Assume potatoes to be a normal good here. (a) Suppose I = \$10,000 and P’ = \$0.25; what would be the market demand for potatoes? At what price would Q = 0? (b) Suppose now I = \$20,000 and P’ stays at \$0.25. Now what would the market demand for potatoes be? Again, at what price would Q = 0? (c) If I returns to \$10,000 but P’ falls to \$0.10, what would the demand for potatoes be? At what price would Q = 0? (d) Graph the demand curve corresponding to the cases in (a), (b), (c). (4x2.5 = 10 points) 2. Suppose that the current market price of VCRs is \$300, that average consumer disposable income is \$30,000, and that the price of DVD players (a substitute for VCRs) is \$500. Under these conditions, the annual U.S. demand for VCRs is 5 million per year. Statistical studies have shown that for this product:

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