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Intermediate Microeconomics: A Modern Approach, Seventh Edition

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Economics 301 – Fall 2007 – PRELIM 2 - J. Wissink – Tuesday November 6 Directions: ANSWER ALL THE QUESTIONS. Write legibly, concisely, and coherently. Be sure to label all axes, functions, and variables you use. READ QUESTIONS CAREFULLY. Draw pictures whenever possible. Show all your work! Total time for the test is 75 minutes. Total points on test = 100. 1. (16pts)Suppose the daily demand function for ski-boat rides at the Ezra Cornell Family Resort on Cayuga Lake is given by the following equation: X D = 50 - 2P X + 4I - 3P Z + P Y, where X D = number of ski-boat rides in a day; P X = price per ride for ski-boat rides and I = income for the day. There are two other variables that enter into this demand function: the price of wet suits (required for the cold waters of Cayuga Lake) and the price of a scenic dinner cruise on the lake. a. Would P Z most likely be the price of wet suits or the price of a scenic dinner cruise? Why do you think so? b. If P X = $20 and I = $50 and P Z = $15 and P Y = $40, how many ski-boat rides are demanded per day? c. If I =$50 and P Z = $15 and P Y = $40, what is the own price elasticity of demand at exactly P X =20? Is demand price elastic or price inelastic? d. If I =$50 and P Y = $40 and P X = $20, what is the cross price elasticity of demand at exactly P Z =15?
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