Question One

Suppose your company is faced with the demand curve: Q^D = 600 - 100P

A)The price elasticity of demand, E^D, at a price of $5 equals _____.

.

B)The price elasticity of demand, E^D, at a price of $1 equals _____.

C)The price of good Y decreases by 15% and the quantity sold of good X decreases by 3%. What is the cross-price elasticity of demand for good X with respect to good Y? How are good X and good Y related? (2 marks)

Question Two

The market for cannabis oil is characterised by the following demand and supply equations:

Q^D = 100 - 4P and Q^S = -20 + 2P, where P is the price per bottle and Q is the quantity of bottles.

A) What are the equilibrium price and quantity?

B)If consumers want to purchase 60 more bottles at any given price, what are the new equilibrium price and quantity?

The utility function for a consumer is U = min{X, Y}. If the price of X is $10, the price of Y is $15, and the consumer has $200, this consumer will purchase _____units of X and _____units of Y in equilibrium.

Hint: The utility function U = min{X, Y} implies that X and Y are perfect complements, consumed in 1:1 ratio.