Suppose the demand function for the Toyota Camry is given by Qd = 500 - 12PC + 10PH - 5PG + 0.0001M, where PC is the price of the Toyota Camry (in thousands), PH is the price of the Honda Accord (in thousands), PG is the price of gas (per gallon) and M is income. Further, suppose the supply curve for the Toyota Camry is given by Qs = 20PC - 55.
a. What is the demand curve for the Toyota Camry if the price of the Accord is $25,000, gas is $2 per gallon and income is $50,000?
b. What is the equilibrium price and quantity in the market for Toyota Camrys?
c. Is demand elastic or inelastic at the equilibrium price?
d. What is the cross price elasticity of demand between Camrys and Accords at equilibrium?
e. What is the income elasticity of demand for Camrys at equilibrium?
What will be an ideal response?
a. Qd = 745 - 12PC.
b. P = $25,000, Q = 445.
c. -12 × (25/445) = -0.67, which implies that demand is inelastic.
d. 10 × (25/445) = 0.56.
e. 0.0001 × (50,000/445) = 0.11.
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A) adaptive expectations model. B) marginal expectations model. C) composite expectations model. D) rational expectations model.
How do households make saving decisions?
What will be an ideal response?