Micro_Problem_Set_I_Solution

Micro_Problem_Set_I_Solution - Microeconomics Spring 2008...

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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? 500 4 1 2000 4 1 = × = × = = I Q I Q I Q D CARS D CARS D 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? $10 decline per month gives 240 24 10 = × dollars decline per 2 years. 2400 10 240 10 = × = × = = TRAIN D CARS TRAIN D CARS TRAIN D CARS P Q P Q P Q c. If monthly unlimited access Metro Card costs $76 and the average annual
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Micro_Problem_Set_I_Solution - Microeconomics Spring 2008...

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