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Analyzing the effects of non-price factors on demand

1). Consider the demand for computers. For each of the following, state the effect on demand:

a.An increase in consumer incomes.
b.An increase in the price of computers.
c.A decrease in the price of internet service providers.
d.A decrease in the price of semiconductors.
e.It is October, and consumers expect that computers will go on sale just before Christmas.

2). The demand curve is given by

Qd = 500 - 5Px + 0-5 I + 10Py - 2Pz
Where
Qd = quantity demanded of good X
Px = price of good X
I = consumer income, in thousands
Py = price of good Y
Pz = price of good Z

a.Based on the demand curve above, is X a normal or an inferior good?
b.Based on the demand curve above, what is the relationship between good X and good Y?
c.Based on the demand curve above, what is the relationship between good X and good Z?
d.What is the equation of the demand curve if consumer incomes are $30,000, the price of good Y is $10, and the price of good Z is $20?
e.Graph the demand curve that you found in (d), showing intercepts and slope.
f.If the price of good X is $15, what is the quantity demanded? Show this point on your demand curve.
g.Now suppose the price of good Y rises to $15. Graph the new demand curve.

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Solution:

1). Consider the demand for computers. For each of the following, state the effect on demand:
a. An increase in consumer incomes.
An increase in income will increase the consumption of normal goods, demand will increase. Demand curve will shift towards right

b. An increase in the price of computers.
It is a movement along the curve, qunatity demanded will decrease.

c. A decrease in the price of internet service providers.
Internet service is a complementary good for computers. An decrease in price of internet service will increase the demand for ...

Solution Summary

Solution describes the effect of changes in various non-price factors on demand. Solution to second problem predicts nature of good and related good based upon given demand function.

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