Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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d e f
Transcribed Image Text:3. Assume equations 1 and 2 below were estimated from the data gathered that will represent
the demand and supply functions respectively of an individual buyer and seller respectively
for product X.
Eq. 1
Eq. 2
Qdx = 65,000 – 11.25Px + 15P, – 3.751 + 7.5A
Q5x = 7,500 + 14.25Px – 15P, – 3.75C
where Px - price of product X; Py – price of product Y; I – average consumer's income; A
advertising expenditure; Pz – price of product Z; and C – cost of production.
Use the following additional information: the price of a related product, Y, is P41.25; the
average consumer's income is P12,000; advertising expenditure is P2,500; the price of product
Z is P90; and the cost of production is P1,200. There are 30 identical buyers and 50 identical
sellers in the market for product X.
Transcribed Image Text:A. Is product X a normal or an inferior product? Justify.
B. How are product X and product Y related for the buyer? Explain.
C. On the part of the seller, what kind product Z is?
D. Using the market demand function, what is Px that will make all the buyers stop
purchasing this product? Round-up to two decimals.
E. What is the interpretation of the parameter a of the market demand function?
F. What is the interpretation of the parameter b of the market demand function?
G. What is the interpretation of the parameter d of the market supply function?
H. What is the market price of product X? Round-up to two decimals.
I. What is the equilibrium quantity in this market?
J. What is the price range that will result to a surplus in the market?
K. What is the price range that will result to a shortage in the market?
If the government will intervene in this market and imposes that the minimum price will be
20% more than the market price,
L. How much would be the quantity demanded? Round-up to two decimals.
M. How much would be the quantity supplied? Round-up to two decimals.
N. From L and M, what is the condition in the market? Explain concisely.
If the new supply equation will be Qs'x = 26,250 + 712.50P'x,
o. What would be the new equilibrium price (round-up to two decimals)?
P. How many of this product will be bought and sold at this new market price? Round-up
to two decimals.
Q. What is the specific reason for this change in supply?
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