# hw1 - by Q d = 10 – P I where I is the level of...

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Eco 300 Homework 1 Due on Thursday 02/03. Each problem is worth 10 points. 1. Use demand-supply graphs to show the combined effects of an increase in supply and a decrease in demand on market equilibrium. In particular, show possible changes in equilibrium price (P*) and quantity (Q*). 2. Briefly explain the three types of economic analyses introduced in class (see Chapter 1), i.e. constrained optimization, comparative statics, and equilibrium analysis. 3. Suppose the supply curve is given by Q s = P – 2 and the demand curve is given
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Unformatted text preview: by Q d = 10 – P + I , where I is the level of consumers’ income. a) Suppose I = 20 . Graph the supply and demand curves and find the equilibrium point. Find the equilibrium quantity and price using the equations. b) Suppose income rises to 24. Find out the changes in equilibrium price and quantity. 4. Consider a linear demand curve, Q = 120 – 4P. a) What is the price elasticity of demand at P = 20? b) At what price demand is unit elastic (i.e. elasticity = –1)?...
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