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Unformatted text preview: Maya Cohen 066370065 Exercise # 7 1. a. The higher income is the higher demand (normal good). b. The higher the price the less we want to buy so it's a movement on the demand curve (shown in the diagram). c. At the Income level of 800, consumers are spending an even amount of money regardless of the rise in price. This means that the elasticity of demand on that level of income is unitary 1. To prove this fact we'll plug point A(2,12) and point B(3,8) A,B= (8-12/8+12)X(2+3/2-3)=-1 in definite values= 1 Now we'll check the relation between the second point to the third: A(3,8), B(4,6) A,B= (3-4/3+4)X(8+6/8-6)= -1 in definite values=1. d. A linear function is equal to Y=mX+B m=^Y/^X = 18-13/2-3= -5 Quantity=Y (dependent variable) Price=X (independent variable) points (4,8) 8=-5(4)+b b=28 therefore the linear function of demand at income of 1200 is Q=-5P+28 The differences between the two expositions of demand in the table and in the function are as follow: in the table we can see very clearly the relation between any given income to the quantity...
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This note was uploaded on 10/25/2009 for the course BUSINESS 772 taught by Professor Sadeh during the Spring '07 term at Interdisciplinary Center Herzliya.
- Spring '07