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Tute_2answers - Introductory microeconomics ECON1001_2010...

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1 Introductory microeconomics ECON1001_2010 Tutorial 2, Week 3 1. The demand and supply functions for a good are given by Demand function: Pd = 450 -2Qd Supply function: Ps = 100 + 5Qs Where, P is the price in dollars and Q the quantity in units. (a) State and give verbal descriptions of the slopes and intercepts of the demand and supply functions Demand function: Intercept is 450. This means that P = 450 when Q = 0. The slope Δ P/ Δ Q = -2. This indicates that the price decreases by 2 units for each successive increase in quantity demanded. Supply function: Intercept is 100. This means that P = 100 when Q = 0. The slope Δ P/ Δ Q = 5. This indicates that the price increases by 5 units for each successive increase in quantity supplied . (b) Show that the equilibrium price and quantity are 50 units and $350 respectively. Equate the demand function to the supply function and solve for Q, then P. 2. Fred’s demand for pasties is given by q1 = 10 – P, where q1 is the quantity demanded by Fred and P is the price. Kate’s demand for pasties is given by q2 = 20 – 2P, where q2 is the quantity demanded by Kate. Fred and Kate are the only consumers in the market. (a) What is the market demand for pasties? market demand – horizontally sum the individual demand curves P = 10 – 1/3Q or Q = 30 – 3P (b) Let supply be given by qs = 2P. What is the market equilibrium? b. Mkt eq P* = $6; q* = 12 2.2 Suppose there are 1000 individuals with the following demand function for good X: xi = 1 - 0.001p, and the supply function for each of the 100 firms producing X is xi = 0.01p. Derive the market inverse demand and supply curves and solve for the market equilibrium quantity and price of good X. Illustrate your answer with a diagram in (x, p) space .
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