ECON 2296
Practice Questions Chapter 2

1)
2)
The daily demand for hotel rooms on Manhattan Island in New York is given by the equation
QD
250,000
375P. The daily supply of hotel rooms on Manhattan Island is given by the equation
QS
15,000
212.5P. Diagram these demand and supply curves in price and quantity space. What is
the equilibrium price and quantity of hotel rooms on Manhattan Island?
The inverse demand curve for product X is given by:
P
X
25 0.005Q 0.15P
Y
,
where P
X
represents price in dollars per unit, Q represents rate of sales in pounds per week, and P
Y
represents selling price of another product Y in dollars per unit. The inverse supply curve of product X
is given by: PX
5 0.004Q.
a.
Determine the equilibrium price and sales of X. Let P
Y
$10.
b.
Determine whether X and Y are substitutes or complements.
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3)
4)
5)
6)
7)
Suppose a new discovery in computer manufacturing has just made computer production cheaper.
Also, the popularity and usefulness of computers continues to grow. Use Supply and Demand analysis
to predict how these shocks will affect equilibrium price and quantity of computers. Is there enough
information to determine if market prices will rise or fall? Why?
Harding Enterprises has developed a new product called the Gillooly Shillelagh. The market demand
for this product is given as follows:
Q 240 4P
a.
At what price is the price elasticity of demand equal to zero?
b.
At what price is demand infinitely elastic?
c.
At what price is the price elasticity of demand equal to one?
d.
If the shillelagh is priced at $40, what is the point price elasticity of demand?
The monthly supply of desktop personal computers is given by the equation
15,000 43.75
At a
price of $800, what is the price elasticity of supply?
Midcontinent Plastics makes 80 fiberglass truck hoods per day for large truck manufacturers. Each hood
sells for $500.00. Midcontinent sells all of its product to the large truck manufacturers. Suppose the own
price elasticity of demand for hoods is 0.4 and the price elasticity of supply is 1.5.
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 Fall '10
 W.GrayGiovannetti
 Economics, Trigraph, Th, quan tity

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