NAME: Peter Okyere Darko

ID NUMBER: 10507769

UGBS 603: ECONOMICS

QUESTION 1(a)

i) The demand curve for good X is given by

QD = 500 – 5Px + 0.5I+ 10PY - 2Pz

Based on the demand curve above it is possible to deduce if X is an inferior good or a

normal good by differentiating with respect to income.

dQD /dI = 0.5

There is a positive relation between income and the quantity demanded of X,

Therefore, X is a normal good. This a good for which consumers will demand less as
their incomes increase, all other things being equal; and a greater demand when
their income decrease, all other things being equal.

ii) Differentiate the demand function with respect to price of good Y, PY

dQD /dPY = 10

There is a positive relationship between the price of good Y and the quantity demanded of
good X. Therefore, the good Y and good X are substitutes. These are goods for which one
can be used in place of the other. This means that consumers derive or obtain satisfaction
from either them.

iii) Differentiate quantity demanded of X by the price of Z, PZ

dQD /dPZ = -2

There is an inverse relationship between the price of good Z and the quantity demand of
good X. This means as price of good Z increases, quantity demanded of both good X and Z
reduces and vice versa, because these two goods are used together . Therefore goods X
 and Z are compliments. Complementary goods are products or services that consumers use
together.

b. The demand curve for good X is given by

QD = 500 - 5PX + 0.5I + 10PY - 2PZ
I = $30,000
PY = $10
PZ = $20
QD = 500 - 5PX + 0.5(30,000) + 10(10) -2(20)
QD= 500 + 15000 + 100 – 40 – 5PX
QD = $15560 – 5PX

c. To find the intercepts, let PX = 0

QD =15560
(15,560, 0)
Let QD = 0
0 = 15,560 – 5PX
PX = 15,560 / 5
PX = 3,112
(0, 3,112)

Price

3,112

15,560 Quantity
The Slope of demand curve is dPX/dQD

dQD /dPX = -5

Therefore

dPX/dQD = -1/5,

The absolute value which is 1/5 is the slope

d. If the price of X is 15;

QD =15,560 – 5(15)

QD =15,560 – 75

QD =15,485

e. The demand curve for good X is given by

QD =500 - 5PX + 0.5I + 10PY - 2PZ

Given that
I = $30,000
PY = $15
PZ = $20
QD =500 - 5PX + 0.5(30000) + 10(15) -2(20)
QD =500 + 15000 + 150 -40 – 5PX
QD =15,610 – 5PX

To find the intercepts Let PX = 0

QD =15610
(15610, 0)
Let QD = 0
 0 =15610 – 5PX
PX =15610/ 5= 3122
(0, 3122)

QUESTION 2 (a)

At equilibrium quantity demanded is equal to quantity supplied

QD = 500 – 2P………………..(eq.1)
QS = -100 + 3P……………….(eq.2)

QD = QS

500 – 2P = -100 + 3P

500 + 100 = 3P + 2P

600 = 5P

P = 600/5

P = 120

Put P=120 into eq.1

QD = 500 – 2(120)

QD =500 – 240 = 260

b) If P = 100

Then QD=500 – 2(100) = 300

QS= -100 + 3(100) = 200

If quantity demanded exceeds quantity supplied there will be shortage in the market which
will lead to black marketing and rationing.
c) If P=150

Then QD=500 – 2(150) =200

QS= -100 + 3(150) = 350

If quantity supplied is more than quantity demanded there will be surplus in the market
which will also lead to conditional sales.

d)

e) If QD = 600 – 2P…………….. (eq.1)

QS= -100 + 3P……………….(eq.2)

At equilibrium QD = QS

600-2P= -100 +3P

700=3P +2P

5P = 700

P = 140

Put P = 140 into eq. (1)

QD=600 – 2(140)

QD=600 -280

QD=320

QUESTION 6

a. Budget constraint of the consumer is I= PX.X + Py.Y

b. Using Langrangian to derive the demand curves for X and Y

L = U(x, y) + λ (I – PX.X - Py.Y) where U(x, y) = 3X2 2Y3

Differentiating with respect to X

dL/dX= 6XY3 – λPX =0 λ= 6𝑋Y 3 /PX…………………..(eq.1)

Differentiating with respect to Y

dL/dY= 9X2Y2– λPY =0 λ =9X2 Y2/PY ……………………(eq.2)

Differentiating with respect to λ

dL/d λ = I – PX.X – PY.Y =0 ………………………………..(eq.3)

Equate Eq.1 and Eq. 2

6𝑋Y 3 /PX= 9X2Y2/PY

6𝑌/PX= 9X/PY

6𝑌/9X= PX/PY

Y=X PX/PY.3/2

Put Y=X PX/PY.3/2 into Eq. 3

I – PX.X – PY. (3X PX/2PY) =0

I – PX.X – X. PX.3/2 =0

I – X.PX.5/2 =0

X=2I/5PX…………………………………………DEMAND FUNCTION FOR GOOD X

Put X=2I/5PX into Eq. 3

I – (2I/5PX) PX– PY.Y =0

I – 2I/5– PY.Y =0

3I/5– PY.Y =0
Y=3I/5PY…………………………………………DEMAND FUNCTION FOR GOOD Y

C. X=2I/5PX

CONSUMERS INCOME = 100

PX = 4

PY = 5

=2(100) / 5(4)

=200 / 20

= 10

Y=3I/5PY

= 3(100) / 5(5)

= 300 / 25

= 12

D. MRSXY = MUX / MUY

= 6XY3/9X2Y2=2Y/3X

This means to get two (2) additional units of good y one would have to give up three(3)
units of good X to be at the same level of satisfaction.