Microeconomics – Spring 2008
Problem Set I.
1. Suppose the demand for new cars in New York City is determined by the following
function:
4
10
4
50000
I
P
P
Q
TRAIN
CARS
D
CARS
+
+
−
=
Q
CARS
Q
is the quantity demand for new cars annually,
is the average price of a new
car including tax,
is the price of a two year unlimited subscription to the subway
system and
CARS
P
TRAIN
P
I
is the average annual household disposable income.
a.
Holding all other factors constant, how would a $2000 increase in income affect
the quantity demanded of new cars?
b.
Holding all other factors constant, how would a $10 decline in the price of
unlimited monthly access to the subway system affect the quantity demanded of
cars?
c.
If an unlimited monthly access Metro Card costs $76 and the average annual
household disposable income is $64000, express the quantity demanded of cars as
a function of the price of a new car only. Sketch the equation (Q on the xaxis and
P on the yaxis) and indicate the slope of the inverse demand curve.
2. The following 2equation system summarizes the market for apples in Midtown:
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 Spring '08
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 Microeconomics, Supply And Demand, average annual household, PAPPLES, unlimited monthly access

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