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# HW1 - x doubles What happens to the graph that you drew...

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Homework 1: Intro to Math and Figure Analysis ECON 010, Fall 2011 Question 1: Demand Function Assume that the demand function for good x is as follows: Q x = 50 + 0 . 25 I 2 P x where Q x is the quantity demanded of good x , I is income, and P x is the price of good x in the economy. Note in particular the quantity of good x demanded is a function of the income and the price of good x . 1) How is Q x related to I ? How is Q x related to P x ? What do the coe cients in front of I and P x represent? 2) Assume that I = 100 and plot the relationship between Q x and P x . (Clearly mark all of the intecepts and the slope). Now assume that the income doubles. What happens to the graph that you drew? 3) Assume that P x = 10 and plot the relationship between Q x and I . (Clearly mark all of the intecepts and the slope). Now assume that the price of good

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Unformatted text preview: x doubles. What happens to the graph that you drew? Question 2: Budget Constraint Consider a person who has to decide how much of good x and y to consume. The price of good x , P x , is \$5 and the price of good y , P y , is \$10. The person has \$100. The graph of the budget line is attached on the next page. 1) Describe the Consumption Possibilities Frontier on the graph. 2) What happens to the budget line if the person’s income increases by 10%? 3) What happens to the budget line if both of the prices increase by 25%? 4) What happens if the ±rst 6 units of good y cost the same as before, but each additional unit of y is half-price? 1...
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HW1 - x doubles What happens to the graph that you drew...

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