HW1_Solutions - Homework 1 Intro to Math and Figure...

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Homework 1: Intro to Math and Figure Analysis Solutions 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? Answer: Q x and I are positively related. When income increases, so does the quantity demanded of good x . In particular, the relationship is linear. This means that a change in the income is going to result in a proportional change in the quantity demanded, which is dictated by the coe cient in front of I . Q x and P x are negatively related. When the price of good x increases, the quantity demanded of good x decreases and vice versa. In this case, the relationship is also linear.
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