微观经济习题.docxVIP

PAGE PAGE 3 Answers 1. Suppose the demand curve for a product is given by Q=10-2P+Ps, where P is the price of the product and Ps is the price of a substitute good. The price of the substitute good is $2.00. a.Suppose P=$1.00. What is the price elasticity of demand? What is the cross-price elasticity of demand? First you need to find the quantity demanded at the price of $1.00. Q=10-2(1)+2=10. Price elasticity of demand= Cross-price elasticity of demand= b. Suppose the price of the good, P, goes to $2.00. Now what is the price elasticity of demand? What is the cross-price elasticity of demand? First you need to find the quantity demanded at the price of $2.00. Q=10-2(2)+2=8. Price elasticity of demand= Cross-price elasticity of demand= 1. Suppose the demand curve for a product is given by Q=300-2P+4I, where I is average income measured in thousands of dollars. The supply curve is Q=3P-50. a. If I=25, find the market clearing price and quantity for the product. Given I=25, the demand curve becomes Q=300-2P+4*25, or Q=400-2P. Setting demand equal to supply we can solve for P and then Q: 400-2P=3P-50 P=90 Q=220. b. If I=50, find the market clearing price and quantity for the product. Given I=50, the demand curve becomes Q=300-2P+4*50, or Q=500-2P. Setting demand equal to supply we can solve for P and then Q 500-2P=3P-50 P=110 Q=280 2. Connie has a monthly income of $200, which she allocates between two goods: meat and potatoes. a. Suppose meat costs $4 per pound and potatoes cost $2 per pound. Draw her budget constraint. Let M = meat and P = potatoes. Connie’s budget constraint is $200=4M+2P, or M=50-0.5P As shown in the figure below, with M on the vertical axis, the vertical intercept is 50. The horizontal intercept may be found by setting M = 0 and solving for P. b. Suppose also that her utility function is given by the equation u(M, P)=2M +P. What combination of meat and potatoes should she buy