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Gobbet 2 - Demand Schedule Solution

# Gobbet 2 - Demand Schedule Solution - Gobbet 2 Consumer...

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Gobbet # 2: Consumer Demand (These problems are adapted from Callan and Thomas: Environmental Economics and Management , 2004) Consider the following demand schedule for bottles of water: PRICE (P) Quantity Demanded by Consumers (bottles/month) \$0.50 1,100 1.00 1,050 1.50 1,000 2.00 950 2.50 900 3.00 850 3.50 800 4.00 750 4.50 700 5.00 650 Plot the demand curve in product space (that is with prices along the vertical axis and quantity along the horizontal axis). Derive the linear demand and inverse demand equations from the table. SOLUTION 11.50 1,150 Demand Quantity Price 1

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To derive the demand and inverse demand equations you can use the point-slope formula. The demand equation describes quantity as a function of price . The appropriate equation will have the form: Q d = m P + b where m is the slope, and b is the intercept. (The subscript d on Q indicates that we are looking at demand) The inverse demand equation describes price as a function of quantity . At various points in this course we will also refer to the inverse demand function as the marginal benefit function.
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