PROBLEM (5) Cars (x) is a normal good, and public transportation (y) is a substitute for cars. The demand for cars(x) is given by where Qp = 20 ± px ± py ± pfuture + I where px is the price of cars, py is the price of public transportation, pfuture is the expected future price of cars and I is the average income level. (a) Decide whether a plus (+) or a minus (-) sign is appropriate for each "+" in the demand equation above. (b) Does the demand become more or less elastic (at a given px) as py increases? (c) Calculate the cross price elasticity of demand (for cars with respect to the price of public transportation py) at the point I = 10, px = 5, Py = 2, pfuture = 1 (d) If the point in (c) is the market equilibrium point where the supply is known to have constant price elasticity with E = 2 at any point on the curve, derive the supply function.

PROBLEM (5) Cars (x) is a normal good, and public transportation (y) is a substitute for cars. The demand for cars(x) is given by where Qp = 20 ± px ± py ± pfuture + I where px is the price of cars, py is the price of public transportation, pfuture is the expected future price of cars and I is the average income level. (a) Decide whether a plus (+) or a minus (-) sign is appropriate for each "+" in the demand equation above. (b) Does the demand become more or less elastic (at a given px) as py increases? (c) Calculate the cross price elasticity of demand (for cars with respect to the price of public transportation py) at the point I = 10, px = 5, Py = 2, pfuture = 1 (d) If the point in (c) is the market equilibrium point where the supply is known to have constant price elasticity with E = 2 at any point on the curve, derive the supply function.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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PROBLEM (5) Cars (x) is a normal good, and public transportation (y) is a substitute for cars. The demand for cars(x) is given by where Qp = 20 ± px ± py ± pfuture ±I where px is the price of cars, py is the price of public transportation, pfuture is the expected future price of cars and I is the average income level. (a) Decide whether a plus (+) or a minus (-) sign is appropriate for each "+" in the demand equation above. (b) Does the demand become more or less elastic (at a given px) as py increases? (c) Calculate the cross price elasticity of demand (for cars with respect to the price of public transportation py) at the point I = 10, px = 5, py=2, pfuture = 1 (d) If the point in (c) is the market equilibrium point where the supply is known to have constant price elasticity with E = 2 at any point on the curve, derive the supply function.
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A utility function is given by the equation U = 20xe¬0.1x, where x is the number of glasses of wine consumed. (a) Show that this utility function has a maximum value and calculate the maximum utility. (b) Describe how marginal utility changes for glasses of wine consumed after the maximum utility is reached. Do you consider this reasonable? Give an explanation.
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Moe's income is $320 per week and he spends it on two goods, X and Y. Good X costs $8 and good Y costs $4 per unit. His utility function is U = 4.5XY. (a) Calculate Moe's utility-maximizing purchases of X and Y. (b) Calculate Moe's constrained utility- maximum if his income decreases by $2.00? (c) If the price of Y doubles, with no change in the price of X, by how much would his income have to increase to enable him to maintain his initial level of utility (as in part (a) above)?
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