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Econ 1 topic 2 solution

Econ 1 topic 2 solution - TOPIC 2 PRACTICE PROBLEMS 1...

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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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