Please assist in the following: Demand, Supply, and Market Equilibrium Q1. The general demand function...

Please assist in the following:

Demand, Supply, and Market Equilibrium

Q1. The general demand function for good A is

Q_d = 754 + 2P_A - 0.05M + 6 P_B + 10 T + 3 P_E + 2N

where Q_d = quantity demanded of good A each month, P_A = price of good A, M = average household income, P_B = price of related good B, T = a consumer taste index ranging in value from 0 to 10 (the highest rating), P_E = price consumers expect to pay next month for good A, and N = number of buyers in the market for good A.

a. Interpret the intercept parameter in the general demand function. (1 point)

b. What is the value of the slope parameter for the price of good A? Does it have the correct algebraic sign? Why? (1 point)

c. Interpret the slope parameter for income. Is good A normal or inferior? Explain. (1 point)

d. Are goods A and B substitutes or complements? Explain. Interpret the slope parameter for the price of good B. (1 point)

e. Are the algebraic signs on the slope parameters for , P_E, and N correct? Explain. (1 point)

f. Calculate the quantity demanded of good A when P_A = $2, M = $60,000, P_B =$24, = 7, P_E = $12, and N = 12,000. (2.5 point)

Solutions

Expert Solution

a. The intercept parameter indicates that 754 units of good A can be sold each month if PA, M, PB, T, PE and N are all equal to zero.

b. PA= +2

Therefore value of slope parameter for the price of good A is +2. It does not have a correct algebric sign because the law of demand states a negative realtion between price and quantity demanded and here + sign shows positive relation.

c.The slope parameter of good A is -0.05. Good A is an inferior good because for every $1 increase in income, the consumer demands 0.05 units less.

d. The slope parameter for the price of good B = +6. which is Positive. It indicates that good A and good B are substitutes. With the increase in price of good B, quantity demanded for A will increase.

e. Yes, The algebric signs for PE and N are correct. Both share a positive relation with quantity demanded. If they expect a rise in price of good A next month, they will demand good A more now. Similarly more the number of consumers , more will be demand for good A.

f. Q_d = 754 + 2P_A - 0.05M + 6 P_B + 10 T + 3 P_E + 2N

= 754 + 2*2 - 0.05*60000 + 6*24 +10*7 + 3*12 + 2*12000

= 754 + 4 - 3000 +144 + 70 + 36 + 24000

= 22008 units of good A

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

The Market Forces of Supply and Demand (Continued from Q1) Consider two functions: Supply function: ?...

The Market Forces of Supply and Demand (Continued from Q1) Consider two functions: Supply function: ? = ? + 5 Demand function: ? = 20 − 4? a. For some reasons (e.g. wage level rises), the supply decreases. Note that it means the supply curve shifts to the left. More precisely, consider the quantity supplied decreases by 5 units for each price level. Write down a new supply function and draw a graph of the new supply curve and demand...

Change in Demand or Supply from Market Equilibrium and Policy The following table displays the demand...

Change in Demand or Supply from Market Equilibrium and Policy The following table displays the demand for kale in a small suburban town in East Kansas. Due to a recent article describing the health benefits to kale gaining popularity, the quantity of kale demanded increased by 10lbs at every price point. Price (dollars per pound) Old Quantity Demanded (lbs) New Quantity Demanded (lbs) Quantity Supplied (lbs) $1.50 30 10 $1.75 25 15 $2.00 20 20 $2.25 15 25 $2.50 10...

Market Equilibrium Worksheet 1. The following table shows the supply and demand schedules in a market...

Market Equilibrium Worksheet 1. The following table shows the supply and demand schedules in a market for sandals. Price ($) Quantity Demanded (units) Quantity Supplied (units) 0 50 0 2 40 15 4 30 30 6 20 45 8 10 60 10 0 75 What is the equilibrium price in the sandals market? What is the equilibrium quantity in the sandals market? At a price of $2, will there be a surplus or shortage of sandals in this market? At...

Market in competitive equilibrium, the demand is the demand and supply respectively are p = 100...

Market in competitive equilibrium, the demand is the demand and supply respectively are p = 100 - QD and p = 20 + (QS /3). The government introduces a subsidy of s = $4 per unit of the good sold and bought Suppose the government is trying to determine the amount of subsidy (they think they can do better than s=$4), to maximize the equilibrium quantity transacted (bought and sold) in the market, yet it has a budget of $1500...

Consider a market with demand and supply functions: Supply function: ? = 40? − 40 Demand...

Consider a market with demand and supply functions: Supply function: ? = 40? − 40 Demand function: ? = 200 − 20� a. Find deadweight loss of the price floor. [Hint: Deadweight loss is a region lost because of no trade.] Welfare effects of a tax Now, the government repeals the price floor and imposes a sales tax of $3 per good on buyers-side. b. Draw a new demand curve with old demand and supply curves. Find the new equilibrium...

Q4. 4.1. Please draw supply and demand in perfectly competitive market and show the equilibrium 4.2....

Q4. 4.1. Please draw supply and demand in perfectly competitive market and show the equilibrium 4.2. Please draw an individual firm’s demand and supply curve in perfectly competitive market 4.3. Show the impact of new technology such as fracking in your graphs in 4.1. at the market level and 4.2. at the individual firm level. Explain what happen to the price at the market level and costs at individual firm level.

Suppose the market is initially in equilibrium, and then demand decreases while supply decreases, the equilibrium...

Suppose the market is initially in equilibrium, and then demand decreases while supply decreases, the equilibrium price will _________ and the equilibrium quantity ______________ . A.) Rise; will increase B.) Rise; is ambiguous/indeterminate C.) Drop; is ambiguous/indeterminate D.) Ambiguous/indeterminate; will fall

Draw a supply and a demand curve and label the market equilibrium on the axes with...

Draw a supply and a demand curve and label the market equilibrium on the axes with P1 and Q1. Illustrate the effect of an increase in demand on price and quantity. Label the new equilibrium values on the axes with P2 and Q2. In your own words and in detail explain the market adjustment leading to the new equilibrium. Show the relevant elements of your explanation in the graph

Draw a supply and a demand curve and label the market equilibrium on the axes with...

Draw a supply and a demand curve and label the market equilibrium on the axes with P1 and Q1. In the same graph, show the effects of an increase in supply and an increase in demand on price and quantity. Label the new equilibrium values on the axes with P2 and Q2. Add one more curve – either for supply or demand demand – to your graph and show that the effect of a simultaneous increase in supply and demand...

Assume the market for bonds is in equilibrium - the curves of demand and supply determine...

Assume the market for bonds is in equilibrium - the curves of demand and supply determine the equilibrium bond prices and the equilibrium interest rate. Suppose that the federal government were to offer larger tax breaks on the purchase of new equipment for businesses, all other factors constant. Use the model of supply and demand for bonds to explain the change in the market - which curve will shift and in which direction. Clearly explain the change in the equilibrium...

Subjects