Q1. Assume the demand function for good X can be written as
Qd = 80 - 3Px + 2Py - 10I
where Px = the price of X,
Py = the price of good Y, and
I = Consumer income.
a. What is the relationship between X and Y? Briefly explain.
b. Is good X a normal good? Explain.
c. Assume that Py= 3, and I = 5, draw the depand curve for the above demand function
Q2. Assume there is an increase in the price of electricity (which is the result of a decrease in the supply of electricity), and electricity and natural gas are substitutes. How would this affect the demand for natural gas, and what would happen to the equilibrium price and quantity of natural gas?
Q3. The demand and supply functions for sweatshirts (the basic grey kind) are as follows:
Demand Supply
Quantity Quantity
Demanded Supplied
Price (per period) Price (per period)
$10 15,000 $10 22,000
9 15,500 9 19,000
8 16,000 8 16,000
7 16,500 7 13,000
6 17,000 6 10,000
5 17,500 5 7,000
4 18,000 4 4,000
3 18,500 3 1,000
2 19,000 2 0
a. Graph the demand and supply functions for sweatshirts and find the equilibrium price and quantity.
b. What effect will an increase in the price of gym shoes (a complement) have on the equilibrium price and quantity of sweatshirts, all else constant? Illustrate the effect using your graph.
c. What effect will a wage increase for workers in the sweatshirt industry have on the equilibrium price and quantity of sweatshirts, all else constant? Illustrate the effect using your graph.