ECON 361 - Practice Problem - Demand Analysis

Your flower shop consulting team estimated the following demand for tulips (sold in bunches) in your town (per day):  Qd = 200 - 14P + 6I - 10Pv + 3Pd

Where P = price of tulips

Pv = price of vases

Pd = price of daisies

I = Income

If the price of daisies = $15,

the price of vases = $5,

and income is = to $50,000 (i.e. use 50)

What would demand for tulips be if the price is $10?

Answer:  Qd = 355

What about at a price of $15?

Answer:  Qd = 285

If you wanted to sell 400 tulip bunches , what price would you charge?

Answer:  $6.78

What would happen to your demand if the daisy sellers lowered their price to $10? (your price is $15)

Answer:  Qd = 270

Show this shift in your demand curve on a graph (so show both graphs - before and after the daisy price change).  Show at least one intercept for each.

Answer:  Your Q axes should be 495 and 480.  Your P axes should be $35.35 and $34.28 respectively.  You should have shifted the curve to the left.

Given your demand function now -- what is your consumer surplus at a price of $15?  Show graphically as well.

Answer:  Since Qd = 480-14P, at price = $15, then Qd = 270 and the price axis is $34.28.

Consumer surplus = .5(19.28) 270 = 2,602.8