HW2_Answerkey

HW2_Answerkey - Homework #2 Answer Key 1. Consider the...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Homework #2 Answer Key 1. Consider the following demand schedule: If the price is 7, the quantity demanded will be: a) 53/4 b) 30 c) 32 d) 33/4 Answer: c). Using the demand schedule we can derive the linear equation that represents the demand (Q=mP+b). We only need 2 points to do so. Lets choose the combination (20,10) as our point 1, and combination (40,5) and our point 2. The slope will then be m=(40-20)/(5-10)=- 4. So we know that Q=-4P+b. Substituting the values of point 1 (for instance) in the equation, we can find the intercept. So, 40=-45+b, which implies that b=60. The demand function is Q=-4P+60. Now, all we have to do is to plug in our price (7) to find the quantity demanded: Q=-47+60=-28+60=32. 2. Let the demand for an inferior good be Q = 100-3/2P. If income goes up, which of the following could be the new demand: a)Q= 150 3/2P b) Q=150 2P c) Q=100 2P d) Q=50 3/2P Answer: d). Note that an inferior good is defined by the fact that, when income increases, demand falls. Therefore, we are looking for a reduction in the intercept , as the slope is left unchanged. Option d has the same slope and a lower intercept when compared with the original demand function....
View Full Document

This note was uploaded on 03/24/2009 for the course ECON 101 taught by Professor Balaban during the Spring '07 term at UNC.

Page1 / 4

HW2_Answerkey - Homework #2 Answer Key 1. Consider the...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online