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• ###### Mohameoud

Quantity is expressed as a function of price using Q=f(P). On the x-axis, we measure quantity, and on the y-axis, we measure price. The slope of the curve decreases as the price falls.
An inverse demand curve can be expressed in terms of P as a function of Q.
On the x-axis, we measure price; on the y-axis, we measure quantity. As the price rises, the curve steepens.
a.
Decrease in the cost of automobiles
Demand for automobiles rises and the demand curve descends when Q is a function of Price (Q=f(P)).
The quantity demanded rises when price is a function of Q, but only in an upward direction along the curve.
Price of automobiles
P
Q
Quantity

b.
A decrease in interest rates: Q=f(P); increases the market’s money supply, which moves the demand and supply curves to the right. Even if the price stays the same, the amount demanded will go up.
Demand will rise at all price levels if price is equal to supply (P=f(Q)). In the future, the supply curve will shift to the left, increasing supply at all prices.
Eq Eq remains constant, but the price is. Demand for the product’s current quantity will rise.
P
Q

c.
A rise in the cost of borrowing
Money supply decreases, which shifts the supply and demand curves to the left. Q=f(P). It’s possible that prices won’t go up or down, but demand will decrease.
Decreases in the amount of money available in the market will cause the demand curve to shift to the left, reducing demand at all price points. In the future, the supply curve will shift to the right, decreasing supply at every price point.
The price of Eq will stay the same, but the demand for Eq will rise.
P
Q

d.
A severe economic recession.
Q=f(P); The decrease in aggregate demand shifts both the demand and supply curves to its left in a severe recession. The price may stay the same, but the demand for the product will decrease.
When total demand falls, the demand curve shifts to the left, resulting in lower demand at all price levels. The supply curve will shift to the right, reducing supply at each price point.
Eq Eq Quantity demanded will increase even if the price remains the same or decreases.
P
Q

e.
A robust economic expansion
As the economy grows, the demand and supply curves move to the right, creating a more balanced economy. Even if the price stays the same, the amount demanded will go up.
The demand curve shifts to the right as a result of an increase in aggregate demand. In the future, the supply curve will shift to the left, increasing supply at all prices.
Eq Eq remains constant, but the price is. Demand for the product’s current quantity will rise.
P
Q

Demand curve is given Q = 1400 -100P -2PS +0.01CSP +750S
where S is dummy variable 1 for Thursday, Friday and Saturday and 0 for Monday, Tuesday, Wednesday and Sunday.
a)
If P=\$10, PS=125 and CSP 35000 and S = 0(because demand is determined on Tuesday) Q = 1400 -100(P) -2(125) +0.01(35000) +750(0)
Q = 1400-100P-250+350
Q = 1500 – 100P
At P =\$10 Q = 500
b)
If P=\$10, PS=125 and CSP 35000 and S = 1(because demand is determined on Friday) Q = 1400 -100(10) -2(125) +0.01(35000) +750(1)
Q = 1400-1000-250+350+750
Q = 1250
Total revenue = P*Q
TR=1250*10 TR=12500

a) price elasticity of demand = % of quantity demanded / % change in price = (240,000-200,000)/((240,000+200,000)/2) * 100
= 18.18%
% change in price = (2-2)/((2+2)/2)*100 = 0
PED = 18.18%
YEAR
Whole life insurance price
whole life quantity
arc elasticity of demand
20011
2.00
240000
0
20012
2.00
200000
18.18
2013
1.90
230000
2.72
2014
1.80
280000
3.62
2015
1.80
238000
16.21
b) point elasticity of demand = % change in QD/% change in P
YEAR
Term insurance price
Term insurance quantity
PED
2011
1.5
100000
0
2012
1.45
130000
7.69
2013
1.45
150000
6.14
2014
1.40
200000
2.83
2015
1.33
270000
1.94
c) if we increase 1% change in the price of term insurance, it will become a best substitute for whole life insurance. The change in elasticities is shown above.