Question

Homework 4

ECON 301

Assume that generic diet cola is an inferior good. At a price of $0.50/can, local consumers’ quantity demanded is 250,000 cans. At a price of $0.40/can, quantity demanded is 265,000 cans. Draw the resulting demand curve. Now assume that income decreases, what happens to the demand curve for generic diet cola?

Given the recent volatility in global stock markets, your company has decided to move funds into bonds. An investment firm offers your company a perpetual bond for $20,000 and guarantees payments for $300 a year. Another investment firm offers your company a perpetual bond with a guaranteed rate of return of 4% per year if you invest $50,000. Which bond do you prefer and why?

Assume that demand function is Q(d) = 1000 – 2P(x).

What is the inverse demand function?

Illustrate the demand curve for X.

What is the quantity demanded of X when price is equal to 50?

What is consumer expenditure at a price of 40?

What is consumer surplus when price is equal to 40?

Price now increases to 60, calculate consumer expenditure and consumer surplus

What happens to consumer surplus as price increases, all else being equal?

Assume that the demand function is Q(d) = 200 – 4P(x).

What is the inverse demand function?

Illustrate the demand curve for X.

What is the quantity demanded of X when price is equal to 40?

What is consumer expenditure at a price of 30?

What is consumer surplus when price is equal to 30?

Price now decreases to 20, calculate consumer expenditure and consumer surplus

What happens to consumer surplus as price decreases, all else being equal?

You are the manager of a midsized company that assembles personal computers. You purchase most components – such as memory and hard drives – in a competitive market. Based on your marketing research, consumers earning over $80,000 purchase 1.5 more memory than consumers with lower incomes. Today, you read in the Wall Street Journal that, that there has been a rise in global demand for computer memory.

Given the above discussion, what would you expect to happen to the price of computer memory in the short-term?

Further in the newspaper, you read that global economies are expected to grow more rapidly in 2018 and that personal incomes should increase by 3%. What impact would the rise in personal incomes have on the demand for your product?

Answer 1