1. Due to the recession that lowered income, the market price of good X got lower. For good X, we assume that Qd(P) = 100 - P + Y/20, and Qs(P) = 2P - Y/20, where Y is the income, and P is the price of good X.
a) Derive the equilibrium price P* in terms of Y.
b) Use your answer to (a) to show the effect of income on equilibrium price, that is, find dP*/dY.
2. Suppose that the demand function for good Y is given as a linear function: Qd(P) = 120-2P, where P is the price of good Y.
a) Find the price at which price elasticity of demand for Y is -1.