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QUIZ 1
Section A
Question 1. [5 marks] Suppose the market demand curve for a product is given by
Qd=1000-10P and the market supply curve is given by Qs = -50+25P
a) [2 marks] What are the equilibrium price and quantity in this market?
To find the equilibrium set Qd=Qs
1000-10P=-50+25P
P=30
At a price of 30, the market quantity is 700
b) [2 marks] At the market equilibrium, what is the price elasticity of demand?
 Q,P 
Q  P 
 
P  Q 
 Q , P  0.429
c) [1 mark] Suppose the price in this market is 25. What is the amount of excess demand?
Plugging 25 into the demand curve implies Qd=750 and plugging 25 into the supply curve implies
Qs=575. Thus the excess demand is 750-575=175.
Question 2 [5 marks] Consider the following two utility functions: U1=max [3A, 2B], U2=
A0.2B0.8. Please graph the ONE indifference curve and appropriately label for EACH utility
function.
U1:
U2