Intermediate Microeconomics assignment

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Economics

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An Intermediate Microeconomics assignment.

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Suppose the quantity demanded in the market for PlayStation 4 games can be expressed as Qd 500 – 40P – 2PPS4 + 4PXBOX + 6Y, where: Qa represents the quantity of PlayStation 4 games demanded, Prepresents the price of a PlayStation 4 game, Pps4 represents the price of a PlayStation 4 console (required to play a game), Pxbox represents the price of an Xbox One (required to play Xbox games, a substitute), and Y represents disposable income. In the same market, the quantity supplied can be expressed as: Qs = 1000 + 60P. 1. Write out a simplified demand function (quantity demanded as a function of the good's price alone) holding constant the other variables at the following values: Pps4 = 350, PXBOX = 300, and Y = 1000. 2. Using the above equations, find the equilibrium price and quantity in the market. Draw a (fully labeled) supply and demand graph representing this market and its equilibrium. 3. What is the price elasticity of demand at the equilibrium price and quantity? Be sure to note if demand is relatively elastic or inelastic at equilibrium. 4. What is the cross-price elasticity between the price of PlayStation 4 console (Pps4) and the quantity of PlayStation 4 games demanded (Qa) at equilibrium? What does this indicate about the relationship between these two goods? 5. Suppose disposable income increases such that Y = 1500. What effect does this change have on the equilibrium price and quantity? Show using a graph and mathematical explanation. 6. Return to the original supply and demand conditions and equilibrium found in Questions 1 and 2. Suppose a price ceiling, defining a maximum price of $40, is imposed on this market. How does this affect the quantities of games demanded and supplied? Show using a graph and mathematical explanation, being sure to indicate any shortage or surplus.
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Running Head: Intermediate Microeconomics

1

Intermediate Microeconomics
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Intermediate Microeconomics
Qd = 500 – 40P -2PPS4 +4PXBOX +6Y
Qs = 1000 + 60P
1. Simplified demand function when;
PPS4 = 350
PXBOX = 300
Y = 1000
Qd = 500 – 40P -2 (350) +4 (300) +6 (1000)
Qd = 500 – 40P - 700+ 1200 +6000
Qd = 7000 – 40P
2. Equilibrium quantity and price
Qd = Qs
7000 – 40P = 1000 + 60P
6000 = 100P
P = 60
Qd = 7000 – 40 (60)
Qd ...


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