Econ 101 Winter 2010 Problem Set 7

# Econ 101 Winter 2010 Problem Set 7 - Economics 101...

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Problem Set 7 February 25 & 26 University of Michigan Winter 2010 Economics 101 Microeconomics

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Econ 101.400 Winter 2010 Question One Suppose the following describes demand for frosted shredded wheat squares in a various regions, over the course of a month: Q d i = 1250 – 300 P i + 25 Y i + 1000 Pop i + 100 P c i – 50 P m i . In this function, Q d i is the quantity of frosted shredded wheat squares demanded in the month in region i (measured in hundreds of boxes), P i is the price of frosted shredded wheat squares in region i (measured in \$/box), Y i is median household income in region i (measured in thousands of dollars per annum), Pop i is the population in region i (measured in millions), P c i is the price of cornflakes in region i (measured in \$/box) and P m i is the price of milk in region i (measured in \$/gallon). (a) Are cornflakes a complementary or substitute product for frosted shredded wheat squares? How do you know? Is this what you would have expected? (b) Is milk a complementary or substitute product for frosted shredded wheat squares? How do you know? Is this what you would have expected? (c) Suppose the following is known about Region 1: median income is \$40,000 per annum, population is five hundred thousand, cornflakes cost \$4/box and milk costs \$3/gallon. Write quantity of frosted shredded wheat squares demanded only as a function of price. Also draw the demand curve. (d) If the price of frosted shredded wheat squares is \$5/box, how many boxes of frosted shredded wheat squares will be demanded this month in Region 1? What is the price elasticity of demand for frosted shredded wheat squares in
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## This note was uploaded on 04/20/2010 for the course ECON 101 taught by Professor Gerson during the Winter '08 term at University of Michigan.

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Econ 101 Winter 2010 Problem Set 7 - Economics 101...

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