07 Jun Question ECON 3304.001 Basic Techniques for Economic Resea
Question
ECON 3304.001
Basic Techniques for Economic Research
Shidi Wang
University of Texas at Dallas, Fall 2015
Problem Set 1 — Due on Sep. 9th
Q1. Describe the deterministic model and stochastic model. Give an example for both of them.
(5 Points)
Q2. Describe function, linear function and non-linear function. Give an example of linear and
nonlinear function, respectively. (5 Points)
Q3. Given the function y = 750 − 15x: its domain is {x|x ∈ R and 0 ≤ x ≤ 50} and its range
is {y|y ∈ R and 0 ≤ y ≤ 750}. (15 Points)
(a) Write down the slope and y-intercept. (5 Points)
(b) Find x-intercept (where y = 0). (5 Points)
(c) Based on (a) and (b), Graph this function. (5 Points)
Q4. Assume that you have information on the price per barrel of oil and quantity demanded.
Let’s say that P = 100, Qd = 90. The price elasticity of demand is −0.4 at P = 100. (15 Points)
(a) Find the slope of the demand. (5 Points)
(b) Find the demand equation. (5 Points)
(c) Based on the demand equation you have derived, what do you predict about the quantity
demanded if price falls to 60? If it rises to 120? (5 Points)
Q5. The supply of NFL referees is L = −200 + 0.25w, where w is the wage per game and L is
the number of referees willing to work at wage w. (15 Points)
(a) Graph the supply of referees. (5 Points)
(b) If the wage is 1200 per game, how many referees will work? (5 Points)
(c) When w decreases from 1200 to 1000, calculate the supply elasticity of referees supply at
w = 1200 and state its economic interpretation. (5 Points)
Q6. The price elasticity of demand is defined as the percent change in quantity demanded that
results from 1% increase in price. Suppose you know that when price is 160, consumption of
product A is 24. When price is 240, the consumption of product A is 12. (15 Points)
(a) Find the demand function of product A. (5 Points)
(b) Calculate the price elasticity of demand for product A at price of 160. Which type is this
elasticity? (5 Points)
(c) Calculate the price elasticity of demand for product A at price of 240. Which type is this
elasticity? (5 Points)
Q7. The cross-price elasticity is the ratio of the percentage change of one good’s quantity
demanded with respect to the percentage change in the price of another good. Suppose the
price of margarine increases from $2 to $3, the demand for butter increases from 20 to 60.
(15 Points)
(a) What is the cross-price elasticity when the price of margarine is 2? (5 Points)
(b) What is the cross-price elasticity when the price of margarine is 3? (5 Points)
(c) What types of goods are margarine and butter? (Substitutes or Complements) (2.5 Points)
(d) Interpret the results above. (2.5 Points)
Q8. Suppose that you are going to make fruit salad and your budget is $15 for apples (A) and
bananas (B). Apples cost $3 per lb and bananas cost $0.75 per lb. (15 Points)
(a) Describe your budget constraint in the form of an equation. (3 Points)
(b) Graph your budget constraint with apples (A) on y-axis. (3 Points)
(c) Find the domain and range using set notation. (3 Points)
(d) Graph the new budget constraint when the price of bananas increases to $0.9 per lb. (A is
still on y-axis) (3 Points)
(e) How does the slope of budget constraint change? (3 Points)
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