Practice ProblemSet 1 ans revised

# Practice ProblemSet 1 ans revised - Spring 2010 Econ 320...

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Spring 2010 Econ 320 Intermediate Microeconomic Analysis Yoichi Otsubo - 1 - Practice Problem Set 1 Answers (revised) 1. Suppose the demand curve for chocolate bars is described by: I P Q d + - = 300 1600 While the supply curve of chocolate bar is described by: P Q s 700 1400 + = Where P is the average price of a chocolate bar (in dollars), d Q and s Q is the quantity demanded and supplied respectively, and I is average consumer income. Suppose that the average income is 1,000. a. What is the quantity of chocolate bars demanded when the average price of a chocolate bar is \$2, \$3 and \$4? What is the price elasticity of demand for each price? Ans. Quantity demanded: 2000 at \$2, 1700 at \$3, 1400 at \$4. Price elasticity of demand: -0.30 at \$2, -(9/17) at \$3, -(6/7) at \$4. b. Derive the inverse demand curve corresponding to this demand curve for chocolate bars. What is the choke price? Sketch the demand curve for chocolate bars. Ans.

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## Practice ProblemSet 1 ans revised - Spring 2010 Econ 320...

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