1 .Suppose the generic demand function of a hypothetical good is given by:

Qd = 250 + 0.75Y- 0.35P + 0.25Py + 500, where Y is income, Py is price of the related good and P is price of the good .Y =1500. P = 3, Py = 2 then

A. Find quantity of demand

B. Calculate price elasticity of demand and interpret your results

Suppose that market price of gas increases from $2 to $3 per gallon and quantity demanded for this good falls from 24 to 18 gallons per week. Calculate price elasticity of demand and interpret the result.

Suppose that weekly income of a household decreases from $1,200 to $1,000 and quantity demanded for gas falls from 18 to 14 gallons per week. Calculate income elasticity of demand and interpret the result.

Suppose that market price of diesel fuel falls from $5 to $3 per gallon and afterwards weekly quantity demanded for gas decreases from 18 to 16 gallons per week. Calculate cross-price elasticity of demand for gas and interpret the result.

Suppose that market price of gas increases from $4 to $5 per gallon and quantity supplied for this good increases from 13 to 17 gallons per single car weekly. Calculate price elasticity of supply and interpret the result.

The extended demand function of good Y is:

Q_d^Y = 1400-20P_X - 10P_y+ 0.1M

where: Q_d^Y= quantity demanded of good Y

P_Y = Price of good Y

M = Average consumer income

P_x = Price of related good X (related in consumption to good Y)

a)

If M=10,000, P_y=50, and P_x=50then Q_dx=____

If M=20,000, P_y=50, and P_x=60then Q_dx=_____

c) Use these two prices and quantities demanded to calculate the value of the price elasticity of demand between these two points on the demand curve for good Y (use the arc elasticity formula). Show your work and interpret your answer. What will happen to revenues for the suppliers of good Y as the price of good Y decreases from P_x=50 to P_x=60? WHY?

The price elasticity of demand measures:

a. the change in quantity demanded of a good given a change in income.

b. the change in quantity demanded of a good given a change in the price of another good.

c. the change in the quantity demanded of a good given a change in the price of the good.

d. the change in the quantity demanded of a good given a change in the price elasticity of supply.