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 x-axis and P on the y-axis) and indicate the slope of the inverse demand curve. 2. The following 2-equation system summarizes the market for apples in Midtown:
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