Question

1) A market’s demand curve

a. is the horizontal summation of individuals’ demand curves.

b. represents a relationship between the total quantity demanded for a good and the good’s price.

c. will shift out when the market includes more consumers.

d. all of the above.

2) Given a demand function Qd=100–5P and a supply function Qs=5P, find the equilibrium quantity and price. Answers are in numbers.

a. Q=20; P=16

b. Q=30; P=14

c. Q=40; P=12

d. Q=50; P=10

3) Given a demand function P=20–0.2Qd and a supply function P=0.2Qs. At the equilibrium price, the consumer surplus is

a. 300

b. 250

c. 200

d. 150

4) The own-price elasticity of demand for good x is -1.5 and there is a 10% increase in the good’s price.

a. The demand for good x is elastic.

b. The total spending on good x decreases.

c. The demand for x decreases by 15%.

d. All of the above.

5) The income effect

a. reflects the change in an individual’s real income as a result of a change in the price of the good.

b. is a movement from one point to another point on the same indifference curve.

c. reinforces the substitution effect for an inferior good.

d. all of the above.

Answer 1

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Question:

1). Answer:

b. represents a relationship between the total quantity demanded for a good and the good’s price.

A market demand curve represents a relationship between the total quantity demanded for a good and the good’s price. When price increase demand decrease and vice-versa.

2). Answer:

d. Q=50; P=10

Qd=100–5P

Qs=5P

Quilibrium point is the point where demand is equal to supply.

Qd = Qs

100-5P = 5P

100 = 10P

P = 10

Qd=100–5P

Qd=100–5*10

Qd= 50

3). Answer:

b. 250

P=20–0.2Qd

0.2Qd = 20-P

= Qd = (20-P)/0.2

P=0.2Qs

Qs = P/0.2

Quilibrium point is the point where demand is equal to supply.

Qd = Qs

(20-P)/0.2 = P/0.2

= 0.2(20-P) = 0.2P

= 4-0.2P = 0.2P

= 4 = 0.4P

P = 10

Qs = P/0.2

Qs = 10/0.2 = 50

CS = 1/2 (10*50)

Consumer surplus = 250

4). Answer:

d. All of the above.

A market demand curve represents a relationship between the total quantity demanded for a good and the good’s price. When price increase demand decrease and vice-versa.

Price elasticity of demand = %Change in quantity demand/%Change inprice

1.5 = %Change in quantity demand/10

%Change in quantity demand = 15

5). Answer:

a. reflects the change in an individual’s real income as a result of a change in the price of the good.

The income effect means the change in consumer's purchases of the goods as a result of a change in his money income. When income increase IC curve shift right and vice-versa.

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