Tutorial 5 - Chapter 15

True/False
1. In general, aggregate demand depends only on prices and total income and
not on income distribution.
2. If the demand curve is a linear function of price, then the price elasticity of
demand is the same at all prices.
3. If the demand function is q = 3m/p, where m is income and p is price, then the
absolute value of the price elasticity of demand decreases as price increases.
4. If we change the units from kilogram to pounds, elasticity of demand will
increase (almost doubles).
5. If the elasticity of demand curve for barley is -1.50 at all prices higher than
the current price, we would expect that when bad weather reduces the size
of the barley crop, total revenue of barley producers will fall.

Problems
1. The demand function for Snack is given by D(p) = (p + 1)2 . If the price
of Snack is $3, then find the price elasticity of demand.
2. The demand curve for a good is given by p = 60 - 8q, where p is the price
and q is the quantity of the good. Suppose that the number of consumers in
the economy doubles; a clone of each consumer, who has exactly the same
demand curve as the original consumer, appears. Find the demand curve for
the doubled economy.

3. If consumer 1 has the demand function x1 = 1,000 - 2p and consumer 2 has

the demand function x2 = 500 - p, then what would be the aggregate demand
function for an economy with just these two consumers?
4. If consumer 1 has the demand function p = 1,000 - 2x1 and consumer 2 has
the demand function p = 500 - x2, then what would be the aggregate demand
function for an economy with just these two consumers?
5. Suppose 100 people are living in Cleverland. If the demand function for each
individual is q = 3m/p, then find the Cleverlands market demand elasticity
with respect to price.