Question 1:

3. The demand curve is given by QD = 500 - 5PX + 0.5I + 10PY - 2PZ where QD = quantity demanded of good X , PX = price of good X, I = consumer income, in thousands, PY = price of good Y , PZ = price of good Z

a. Based on the demand curve above, is X a normal or an inferior good?

b. Based on the demand curve above, what is the relationship between good X and good Y?

c. Based on the demand curve above, what is the relationship between good X and good Z?

d. What is the equation of the demand curve if consumer incomes are $30,000, the price of good Y is $10, and the price of good Z is $20?

e. Graph the demand curve that you found in (d), showing intercepts and slope.

f. If the price of good X is $15, what is the quantity demanded? Show this point on your demand curve.

g. Now suppose the price of good Y rises to $15. Graph the new demand curve.

Question 2:

Suppose the demand and supply curves for a product are given by

QD = 500 - 2P

QS = -100 + 3P

a. Graph the supply and demand curves.

b. Find the equilibrium price and quantity.

c. If the current price of the product is $100, what is the quantity supplied and the quantity demanded? How would you describe this situation,

and what would you expect to happen in this market?

d. If the current price of the product is $150, what is the quantity supplied and the quantity demanded? How would you describe this situation,

and what would you expect to happen in this market?

e. Suppose that demand changes to QD = 600 - 2P.

Find the new equilibrium price and quantity, and show this on your graph.

Question 3:

Using data sources from business publications and the Internet; discuss significant trends in both demand and supply in the copper industry that have influenced the price of copper since September 2011. What are the implications of these trends for managerial decision-making in the copper industry?

Question 4:

1. For each of the following cases, calculate the arc price elasticity of demand, and state whether demand is elastic, inelastic, or unit elastic.

a. When the price of milk increases from $2.25 to $2.50 per gallon, the quantity demanded falls from 100 gallons to 90 gallons.

b. When the price of paperback books falls from $7.00 to $6.50, the quantity demanded rises from 100 to 150.

c. When the rent on apartments rises from $500 to $550, the quantity demanded decreases from 1,000 to 950.

Question 5:

In March 2010, Mc Donald's Corp. announced a policy to increase summer sales by selling all soft drinks, no matter the size, for $1.00. The policy would run for 150 days starting after Memorial Day. The $1.00 drink prices were a discount from the suggested price of $1.39 for a large soda. Some franchisees worried that discounting drinks, whose sales compensate for discounts on other products, could hurt overall profits, especially

if customers bought other items from the Dollar Menu. McDonald's managers expected this promotion

would draw customers from other fastfood chains and from convenience stores such as 7-Eleven. Additional customers would also help McDonald's push its new beverage lineup that included smoothies and frappes. Discounted drinks did cut into McDonald's coffee sales in previous years as some customers chose the drinks rather than pricier espresso beverages. Other chains with new drink offerings, such as Burger King and Taco

Bell, could face pressure from the $1.00 drinks at McDonald's.47

a. Given the change in price for a large soda from $1.39 to $1.00, how much would quantity demanded have to increase for McDonald's revenues to increase? (Use the arc elasticity formula for any percentage change calculations.)

b. What is the sign of the implied cross-price elasticity with drinks from McDonald's competitors?

c. What are the other benefits and costs to McDonald's of this discount drink policy?