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Econ 301  Problem Set #1 Due on Friday, Jun 18, 2010
1. Suppose demand D for a good is a linear function of its price per unit, P. When price is $10, demand
is 200 units, and when price is $15, demand is 150 units. Find the demand function.
2. Suppose that demand for pizza is
Q
= 1000

20
P
+10
P
x

5
P
z
+10
Y
, where P is the price of a pizza,
P
x
and
P
z
are the prices of some other goods X and Z, and Y is income.
Answer the following questions assuming that
P
= 100
,
P
x
= 50
,
P
z
= 200
,
Y
= 800
.
(a) What is the quantity Demanded?
(b) Are pizza and goods X complements or substitutes?
(c) Are pizza and goods Z complements or substitutes?
(d) What is the price elasticity of demand (Show work)?
(e) Use the number you calculated in (1.d) in a clear concise sentence explaining what that number
means.
(f) Based on your answer to (1.d), is demand elastic or inelastic at the given prices and income?
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This note was uploaded on 08/01/2011 for the course ECON 301 taught by Professor Corinnelanginier during the Summer '07 term at Iowa State.
 Summer '07
 CORINNELANGINIER
 Microeconomics

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