CHAPTER 2

1.The inverse demand curve for product X is given by:

PX = 25 - 0.005Q + 0.15PY,

where PX represents price in dollars per unit, Q represents rate of sales in pounds per week, and PY represents selling price of another product Y in dollars per unit. The inverse supply curve of product X is given by: PX = 5 +0.004Q.

a. Determine the equilibrium price and sales of X. let PY = $10.

b. Determine whether X and Y are substitute or complements.

2.Suppose the cable TV industry is currently unregulated. However, due to complaints from consumers that the price of cable TV is too high, the legislature is considering placing a price ceiling on cable TV below the current equilibrium price. Assuming the government does make this price ceiling law, please construct a diagram that shows the impact of this law on the cable TV market, and please briefly explain the effects on market prices and quantities with supply and demand analysis. Also, if the cable TV company is worried about disgruntling customers, the company may introduce a different type of programming that is cheaper for the company to provide yet is equally appealing to customers. What would be the effect of this action?