Chapter 2

Worksheet
1. The market for lemonade has 10 potential consumers, each having an individual
demand curve P = 101 - 10Qi, where P is price in dollars per cup and Qi is the number of
cups demanded per week by the ith consumer. Find the market demand curve using
algebra. Draw an individual demand curve and the market demand curve. What is the
quantity demanded by each consumer and in the market as a whole when lemonade is
priced at P = $1/cup?
2. For the demand curve P = 60 - 0.5Q, find the elasticity at P=10.
3. Consider the demand curve Q =100 - 50P. Draw the demand curve and indicate which
portion of the curve is elastic, which portion is inelastic, and which portion is unit elastic.
4. Suppose that at a price of $400, 300 tickets are demanded to fly from Ithaca, New York,
to Los Angeles, California. Now the price rises to $600, and 280 tickets are demanded.
Assuming the demand for tickets is linear; find the price elasticities at the quantity-price
pairs (300, 400) and (280, 600).
5. The demand for schedule for beer is Xd=25-P, where Xd is the quantity demanded of
beer in millions of barrels per year and P is price in dollars per barrel.
A) If the supply curve for beer is Xs = -20 +4P, what is the equilibrium price of a
barrel of beer?
B) Calculate and interpret price elasticity of demand and supply at the equilibrium
point.
C) What would the effect on the price of a barrel of beer if a tax of $ 4 per barrel is
imposed by the government?
D) How much revenue does the government collect?
6. Suppose in a market there are 30,000 consumers of corm each have identical demand
function given by Qd=25-2P and 10,000 producers each with identical supply curve
given by Qs= -15+6P
A) Find the market equilibrium price and quantity?
B) What would be the state of the market if market price was fixed at Birr 7 per
unit?
C) Calculate and interpret price elasticity of demand at the equilibrium point.
D) Compute total revenue at market equilibrium.
7. Based on the following table which indicates expenditure of the household on a
commodity, answer the questions that follow. ( The price of the good is Br.10 )
Income Quantity Demanded
( Br. / month) ( units / month )
10,000 50
 20,000 60
30,000 70
40,000 80
50,000 90
A) Calculate income elasticity of demand, if income increases from Br.10, 000 to Br.
20,000 and if income increases from Br.40, 000 to Br. 50,000.
B) Is this a normal or an inferior or a luxury good? Justify.
C) Does the proportion of household income spent on this good increase or decrease as
income increases? .Why?
8. When price of tea in local café rises from Br. 10 to 15 per cup, demand for coffee rises
from 3000 cups to 5000 cups a day despite no change in coffee prices.
A) Determine cross price elasticity.
B) Based on the result, what kind of relation exists between the two goods?