ECON3352 Microeconomics Worksheet - The demand curve

ECON 3352 Troy University Microeconomics Worksheet

ECON 3352 – Intermediate Micro Troy University

Homework #

1. [6] The demand curve for thingamajigs is Q = 700 – 10*P, and the supply curve is Q = 10*P -100.

a. Calculate the equilibrium price and quantity of thingamajigs.

b. Suppose that market demand for thingamajigs changes to Q = 900 – 10*P. Is this an increase or decrease in demand? Find the new equilibrium price and quantity in this case.

2. [7] Let the market demand for avocadoes be Q = 50 – 2*P and the market supply by Q = 5*P – 20.

a. Calculate the equilibrium price and quantity of avocadoes.

b. Suppose that the government imposes a price ceiling on avocadoes of $5. Find the quantity demanded, quantity supplied, and amount of the surplus or shortage in the market at the price ceiling of $5.

3. [5] Bradley consumes two goods, apples and hot dogs. Draw her budget line for each of the following cases:

a. b. c. d. e.

Price of apples = $1, price of hot dogs = $2, income = $20.

Price of apples = $2, price of hot dogs = $2, income = $20.

Price of apples = $1, price of hot dogs = $1, income = $20.

Price of apples = $1, price of hot dogs = $2, income = $30.

Price of apples = $2, price of hot dogs = $4, income = $40; compare to part a.

4. [4] Graph the budget line for each of the following circumstances.

a. Consider Pablo’s choice between watching movies on Netflix and all other consumption goods. Movies cost $5 to watch on Netflix. Pablo has cash income of $150 and a $25 Netflix gift card, which cannot be resold and must be used entirely during the current period.

b. Sally purchases food and clothes and works at a clothing store. Her income is $300, the price of food is $10, and the price of clothes is $30. Sally receives an employee discount of the following form: She gets 50% off the price of all clothes items after purchasing 2 at the regular price.

5. [8] Sketch out utility = 60 and utility = 120 indifference curves for each of the following utility functions. In each case describe the type of preferences that appear to be represented by each utility function:

 a. b. c. d.

U(x,y) = x + 3*y

U(x,y) = 30 + x + y

U(x,y) = x*y

U(x,y) = Minimum(3*x, 6*y)

6. [4] Kirby purchases 6 pizzas per month when the price is $15 and 4 per month when the price is $20. Calculate Kirby’s price elasticity for pizza at the price of $15. Is her demand for pizza elastic or inelastic? How much money does Kirby spend on pizza each month before and after the price increase? Does this change correspond with the predicted effect due to the elasticity of demand?

7. [4] The Last Chance Deli sells 100 club sandwiches a day when the price of meatball subs is $8 and 120 club sandwiches when they raise the price of meatball subs to $9. Calculate the cross price elasticity when the price of meatball subs is $8. Based on your answer, are these two sandwiches substitutes or complements?

8. [4] James buys 10 boxes of Ramen noodles per month when his income is $500 per month and 3 boxes per month when his income is $1,000 per month. Calculate James’ income elasticity for Ramen when his income is $500. Based on your answer, is Ramen a normal or inferior good for him?

9. [4] Geraldine spends $300 on jewelry annually when her income is $30,000 per year and $600 on jewelry when her income rises to $45,000 per year and the price of jewelry remains unchanged. Calculate Geraldine’s income elasticity for jewelry when her income is $30,000. Based on your answer, is jewelry a necessity or luxury for Geraldine?

10. [3] Suppose that we observe a pet store offering a promotion to give away goldfish, which they normally sell for $8 each. Could such a promotion possibly increase the store’s revenue? Explain.

11. [6] Suppose that market demand for beach towels in Destin is Q = 500 – 50*P per week. At what price and quantity will consumer spending on towels be maximized, and what is this maximized expenditure per week?