TOPIC 2 PRACTICE PROBLEMS
1
Problem 1.
Market Demand
Let B
d
= D(P
b
,P
f
,P
e
,Y,L), where:
B
d
= quantity of ordinary
(incandescent) light bulbs demanded per month
P
b
= price of ordinary bulbs
P
f
= price of efficient fluorescent bulbs
P
e
= price of electricity
Y = average household income
L = number of hours of daylight per month
We statistically estimate the demand function:
B
d
= 1058 −
50P
b
+ 30P
f
−
10P
e
+ 800Y −
3L
1.
Answer the following {circle best answer}:
Incandescent bulbs are {
normal
, inferior}.
Incandescent bulbs and fluorescent lights are {complements,
substitutes
}.
Incandescent bulbs and electricity are {
complements
,
substitutes}.
2.
Let P
f
= 2, P
e
= 3, L = 14, and Y = 1.2.
Substitute into the demand
function and simplify to find the equation of the inverse demand
function, then graph the demand curve in the space at right.
P
b
= p(B
d
) =
40.12 −
0.02B
Problem 2.
Market Equilibrium
In the market for good X, the demand and supply functions are:
X
d
= 10 −
2P
x
+ 4Y + 0.5P
z
X
s
= 2P
x
− 2W −
R
where X = quantity; P
x
= price of X; P
z
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 Spring '08
 TANG
 Supply And Demand, tax revenues, demand function, incandescent bulbs, Demand Let Bd

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