Assignments 1 Demand

Assignment (1) - Demand
Managerial Economics :
_________________________________________________________________________
Name Mahmoud Ahmed Ibrahim – Group B – MBA. CU ID# _____ _____________________________________________________________________
1. What happens to the demand for SONY television sets when each of the following happens: a) The price of LG TVs rises (the demand for SONY television will increase).
b) The price of SONY TVs rises (the demand for SONY television will decrease).
c) Personal income falls (the demand for SONY television will decrease).
d) Dramatic price reductions occur for CD recorders (the demand for SONY television will Increase).
e) gov’t imposes tariffs on Japanese TVs beginning next year (the demand for SONY television will Increase).

2. Suppose the demand for a product (X) can be expressed as a function of its price (PX), consumer monthly income (I), and the price of a related good R (PR) QX = 180 - 10 PX - 0.2 I + 10 PR

a) Interpret the slope coefficient on Px
(PX = 18 - 0.1QX - 0.02 I + PR)
b) Is good X a normal or inferior good? How do you know? (X a inferior good because the coefficient of I is (-0.2 I).
c) Are goods X and R substitutes or complements? How do you know? (goods X and R are substitutes because the coefficient of PR is (+10PR).
d) Forgetting income and the price of a related good, how much consumer surplus exists in this market if the price of X were $10?

At this assume we find that:

At Qx = 180 – 10PX

PX
QX
0
180
6
120
12
60
18
0

From the below chart

Consumer surplus = expected price – Actual price

Expected price = (10+18)/2 X 80 = $1120

Actual Price = 80 X10 = $800

So Consumer surplus = 1120-800 = $320