DEMAND (50 marks)
Suppose there are only 3 consumers in the market for a particular good. The quantities demanded by each consumer at each price between $1 and $9 are shown in the following table:
Price of X ($) Consumer 1 Consumer 2 Consumer 3
$90 0 0 20
80 0 5 40
70 0 10 60
60 5 15 80
50 10 20 100
40 15 25 120
30 20 30 140
20 25 35 160
10 30 40 180
Draw the demand curve for each of the 3 consumers in the same graph. Label the three curves D1, D2, and D3, respectively.
Write the difference in the demand behavior of Consumer 1 and Consumer 3.
Calculate the market quantity demanded at each price.
Draw the market demand curve and label it DM – using the same graph as above.
Comment on the graph for market demand for the good, in comparison to the individual demands.
The manager at Borderline Music Emporium faces the demand curve for compact discs. At the current price of $9 per compact disc, Borderline can sell 1500 CDs each week. If the manager lowers price to $7 per compact disc, there is an increase sales to 1700 CDs per week.
Calculate the Price Elasticity of Demand for this price change.
What sort of elasticity it is? Draw the relevant graph to show this type of demand elasticity.
If he lowers the price from $9 to $7 and gets higher sales, does it increase the revenue for Borderline Music? Was it the correct managerial decision? Calculate the change in his total revenue.
George is a 10year old boy. He only wants to play video games or buy comic books which cost $5 each. He has $20 to spend.
Draw George’s Budget Line on a graph assuming that he spends all his money. Draw the highest indifference curve for George, given his budget line, such that he decides to play 1 video game and buy 3 comic books. Mark this point as “C”.
Now suppose the video game prices are slashed by half to only $2.50 per game. Draw George’s new budget line. George now moves to a point where he plays 2 video games and buys 3 comic books. Mark this point as…