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Unformatted text preview: ECO 3301 Fall 2010 Homework 1: Answer Key The due date for this assignment is Friday, September 3. 1. The demand for books is:Qd = 120 - P The supply of books is:Qs = 5P (a) Equate Qd and Qs, to get 120 - P = 5P. So, that 6P = 120. Therefore, the equilibrium price of books is P* = $20. (b) Use P* in either the supply or demand equations to get the equilibrium quantity: Q* = 5P* = 100. (c) If P = 15, then Qd = 120 - 15 = 105, and Qs = 75. So, demand exceeds supply by 30. So, there is a shortage of 30 at P = 15. 2. The demand curve has di/erent elasticities at di/erent points. At A, it is in&nitely elastic; at B it¡s elastic, but not in&nitely elastic; at C it¡s unit elastic; at D it¡s inelastic, but not completely inelastic, and at E it is completely inelastic. (a) Equate supply to demand to calculate Q. 25 - 0.005Q + 0.15(10) = 5 + 0.004Q 21.5 = 0.009Q Q = 2,388.9 units per week At Q = 2,388.9, P = 25 - .005(2,388.9) + 0.15(10) P = $14.56 per unit. (b) Since we can solve for quantity demanded as a function of prices, Q = 25+0 : 15 P Y & P X : 005 we see that there is a direct, positive relationship between Q and P Y . An increase in the price of good Y generates an increase in the quantity demanded for good X at any value of P X , which implies that goods Y and X are substitutes . (a) The equilibrium price can be found by equating quantity demanded and quantity supplied (graphically, this is where the Demand and Supply curves intersect)....
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This note was uploaded on 09/23/2010 for the course ECO 3301 taught by Professor Mananroy during the Spring '10 term at Southern Methodist.
- Spring '10