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 +0.3I300P+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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 Spring '08
 Ghosh
 Economics, Supply And Demand, DVD, scrod

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