Econ 2000 Intermediate Microeconomics I,

2019-2020 I (Fall Semester)

Exercise Set 2,

1. Consider the demand and supply schedules of;

Supply: QS=P-100
Demand: QD=800-0.5P
a. Plot the supply and demand curves and mark the equilibrium. Indicate equilibrium
price, equilibrium, as well as consumer and producer surpluses over your figure.
b. Calculate equilibrium price and quantity.
c. How much is shortage/surplus if P=$800?
d. How much is shortage/surplus if P=$500?
e. At which price level is excess supply 150 units?
f. How much are consumer and producer surpluses?

2. Explain why price elasticity of demand negative is? Is cross-price elasticity negative or
positive for substitutes? How about complementary goods?

3. Consider the demand schedule given in Question 1: QD=800-0.5P.

a. Compute the price elasticity of demand at $300 of price.
b. At which price is the price elasticity of demand -3?

4. For which commodities is the income elasticity of demand positive and for which ones is
it negative, justify your answers with the elasticity formula?