# HW2_answers - HW#2 Economics 304K:Principles of...

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HW #2 Economics 304K:Principles of Microeconomics Prof. Meg Ledyard Due Friday, 9/24/04 (25 Points total) Remember to type the homework except for charts and graphs. Question 1: (6 points) Consider the perfectly competitive market for Nintendo Game Cubes. a. Sketch a demand/supply diagram for the market for Nintendo Game Cubes. Label the equilibrium price and quantity on your diagram. P of Nintendo Game Cubes S P* D Q* Q of Nintendo Game Cubes

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b. You study survey data and observe that if Nintendo Game Cubes cost \$100, then 20 Nintendo Game Cubes are demanded, while if Nintendo Game Cubes costs \$200, only 15 Nintendo Game Cubes are demanded. You also observe that if Nintendo Game Cubes cost \$150, then 50 Sony Playstation 2’s are demanded and if Nintendo Game Cubes cost \$200, then 75 Sony Playstation 2’s are demanded. Calculate the Cross Price Elasticity of Demand for Nintendo Game Cube and Sony Playstation 2’s. How are these two goods related? They are substitutes since the cross price elasticity is greater than zero. 5 7 ) 2 / ) 200 150 /(( ) 200 150 ( ) 2 / ) 75 50 /(( ) 75 50 ( % 2 % Pr = + + = = eCubes changePGam n Playstatio changeQ ity iceElastic Cross D
c. Suppose the price of Sony Playstation 2’s increases.

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HW2_answers - HW#2 Economics 304K:Principles of...

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