ASSIGNMENT # 1

Q.1

The market for pizza has the following demand and supply schedules:
Price
$4
5
6
7
8
9

Quantity Demanded
135 pizzas
104
81
68
53
39

Quantity Supplied
26 pizzas
53
81
98
110
121

a. Graph the demand supply curves. What is the equilibrium price and quantity in this
market?
b. If the actual price in this market were above the equilibrium price, what would drive the
market toward the equilibrium?
c. If the actual price in this market were below the equilibrium price, what would drive the
market toward the equilibrium?
Q.2
Suppose that business travelers and vacationers have the following demand for airline
tickets from New York to
Boston:
Price
$ 150
200
250
300

Quantity Demanded
(Business Travelers)
2100 tickets
2000
1,900
1,800

Quantity Supplied
(Vacationers)
1,000 tickets
800
600
400

a. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i)
business travelers and (ii) vacationers? (Use the midpoint method in your calculations.)
b. Why might vacationers have a different elasticity from business travelers?
Q.3

Suppose that your demand schedule for DVDs is as follows:

Price

Quantity Demanded
(Income = $ 10,000)

$ 8
10
12
14
16

40 DVDs
32
24
16
8

Quantity Supplied
(Income = $ 12,000)
50 DVDs
45
30
20
12

a. Use the midpoint method to calculate your price elasticity of demand as the price of DVDs
increases from $8 to $ 10 if your income is $10,000 and your income is $12,000.
b. Calculate your income elasticity of demand as your income increases from $ 10,000 to
12,000 if (i)the price is $ 12 and (II) the price is $ 16.