1- The market for Calloway golf clubs has the following demand and supply functi

Question

1- The market for Calloway golf clubs has the following demand and supply functions:

            QD = 4500 3.5 P             QS = - 2000 +7 P

Note that the quantity is in hundreds of sets of golf clubs and the price is in dollars.

A - Calculate the equilibrium price and equilibrium quantity in the market for Calloway golf clubs.

B- If the price elasticity of demand is – 0.93 and the people at Calloway raise the price of a set of their clubs by 15%, how will this impact the number of sets of clubs they will likely sell. You need to calculate a specific number here.

C - Now assume that Calloway clubs have an income elasticity of demand of + 1.2. Are the clubs normal or inferior goods? Are they luxury or necessity goods? Explain.

Explanation / Answer

A) QD=QS

4500-3.5P = -2000 +7P

6500 = 10.5P

P= 619

QD=4500-3*619

QD= 2643

So equilbruim quantity is 2643 and price is $619

B) we have Ed=-0.93

New price = equilbruim price + 15% = 711

Ed =( Q2-Q1)/ (Q2+Q1) / ( P2-P1) / (P2+P1)

-0.93 = ( Q2-2643) / (Q2+2643) / (711 -619) / (711+619)

-0.93 = (Q2-2643) 1330 / (Q+2643) 92

-0.93 = (1330Q2 - 3515190) / (92Q2+ 243156)

-85.56Q2 - 226135 = 1330Q2 -3515190

- 1415.56Q2 = -3289055

Q2 = 2323

So when price rise rises 15% , the quantity demand decrease to 2323.

C) The clubs is a normal good because the income elasticity is positive and income elasticity is positive for normal goods.

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