HW_3_solution_Q5_Q10 - Econ 1110 HW#3 Solution Q5 Q e = 0.5...

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Econ 1110 HW#3 Solution Q5 (1,000,000 800,000) 1,000,000 0.5 100 Q Q e PP P Δ =− = = ΔΔ So =-40. So the price will increase by 40 dollars P Δ Q6 Income elasticity of demand= I I Q Q Δ Δ =(-1%)/3%=-0.33 The good is inferior. The total revenue will decrease since both equilibrium price and quantity will decrease. Q7 10 5% Pepsi Pepsi Pepsi Pepsi Coke Coke QQ e P P = = Δ % 50 = Δ Pepsi Pepsi Q Q .So the demand for Pepsi will decrease by 50% 1
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Q8 Since supply is perfectly inelastic, so supply curve is a flat line. (a) In Figure 1, D1 is the original demand curve. D2 is the new one. Original Equilibrium Point is (q1,p1) Consumer Surplus=Area of ABC Producer Surplus=0 (Since supply is flat, MC=P at each point. So total revenue=total cost. So PS=0) (b) In Figure 1, D1 is the original demand curve. D2 is the new one. New Equilibrium Point is (q2,p2) . CS=Area of A’B’C PS=0 Compared to the original equilibrium point, the new equilibrium will have a higher quantity and higher CS. Price and PS remain the same.
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This note was uploaded on 03/27/2009 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell University (Engineering School).

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HW_3_solution_Q5_Q10 - Econ 1110 HW#3 Solution Q5 Q e = 0.5...

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