Answer to Question #225404 in Microeconomics for Ryan

Question

The demand function of a product is as follows: -

q_a = 200.5 - 3.5P_a + 2.5I

and, P_a = $ 50 and I = $ 1000

(i) Compute the demand when P = $ 60 and 'I' is constant.

(ii) Compute the demand with P = $ 50 and I = $ 1500.

(iii) Explain this phenomenon by the help of a diagram by the method of change in demand and shift in demand.

Answer 1

q_{a=200.5-3.5(50)+2.5(1000)}

_=2525.5

i)

q_{a =200.5-3.5(60)+2.5(1000}

=2490.5

ii)

q_{a =200.5-3.5(50)+2.5(1500)}

_=3740.5

iii)

This explains increase in price

This explains increase in income