Question

1) Suppose that the demand is given by the equation: Qd = 200 - 2P. if the market price is 20, what is the consumer surplus?

A) 8,100

B) 6,400

C) 81,000

D) 64,000

2) Suppose that the demand for good Y is given by the equation: Qdy = 40- 2Py + Px, where Px is the price of good X and Py is the price of good Y. If Py is $16, and Px is $8 , what is the consumer surplus in market Y?

3) Suppose scientists provide evidence that people who drink energy drinks are more likely to have a heart attack than people who do not drink energy drinks. We would expect to see

A) No change in the demand for energy drinks

B) An increase in the demand for energy drinks

C) A decrease in the supply of energy drinks

D) A decrease in the demand for energy drinks

4) Suppose that the demand for good Y is given by the equation: Qdy = 200- 2Py + 3Px, where Px is the price of good X and Py is the price of good Y. Based on this equation we can conclude that:

A) Good X and good Y are complementary goods

B) When the price of X goes down the quatity demanded of Y goes up

C) Good X and good Y are substitute goods

D) When the price of X goes up the quatity demanded of Y goes down

Answer 1

1. Ans: $6,400

Explanation:

Qd = 200 - 2P

At P = 20

Qd = 200 - 2(20) = 160

The inverse demand function is;

P = 100 - 0.5Qd

When, Qd = 0, P = 100

Consumer surplus = 0.5[(100 - 20) * 160] = $6,400

Thus, option [B] is correct answer.

2. Qdy = 40 - 2Py + Px

Substituting the value of Px

Qdy = 40 - 2Py + 8 = 48 - 2Py

At Py = 16

Qdy = 48 - 2(16) = 16

The inverse demand function is

Py = 24 - 0.5Qdy

When Qdy = 0, Py = 24

Consumer Surplus = 0.5[(24 - 16) * 16] = $64

Thus, consumer surplus in market Y is $64.

3. Ans: A decrease in the demand for energy drinks.

Explanation:

Since people came to know that energy drinks are bad for health, the demand for energy drinks decreases.

Thus, option [D] is correct answer.

4. Ans: Good X and good Y are substitute goods.

Explanation:

In the demand function, since the price coefficient of good X (i.e., +3) is positive, so good Y and good X are substitutes.

Thus, option [C] is correct answer.