# Intermediate Microeconomics – coursefighter.com

Intermediate Microeconomics – coursefighter.com

Business Finance – coursefighter.com

instructions: Use the information below to answer the following questions.

Suppose the quantity demanded in the market for scooters can be expressed as

${Q}_{d}=1000-80p-2{p}_{h}+10{p}_{b}+12Y$,

where:

${Q}_{d}$ represents the quantity of scooters demanded,

$p$ represents the price of a scooter,

${p}_{h}$ represents the price of a hospital visit,

${p}_{b}$ represents the price of a bicycle, and

$Y$ represents disposable income.

In the same market, the quantity supplied can be expressed as:

${Q}_{s}=5000+20p$.

- 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:

${p}_{h}=500$,

${p}_{b}=300$, and

$Y=1000$.

- 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.

- 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.

- What is the cross-price elasticity between the price of a hospital visit (

${p}_{h}$) and the quantity of scooters demanded (

${Q}_{d}$) at equilibrium? What does this indicate about the relationship between these two goods?

- 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.

- 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 $50, is imposed on this market. How does this affect the quantities of scooters demanded and supplied? Show using a graph and mathematical explanation, being sure to indicate any shortage or surplus.