1. Consider the following weekly supply and demand tables for product X: P Qd Qs
ID: 1185090 • Letter: 1
Question
1. Consider the following weekly supply and demand tables for product X:
P Qd Qs
16 0 35
14 5 30
12 10 25
10 15 20
8 20 15
6 25 10
4 30 5
2 35 0
A. Draw the supply and demand curves on the same diagram. Determine the equilibrium price and quantity and demonstrate it in your graph.
B. Demonstrate the impact of a government price control set at P = $14. Demonstrate by number and in the graph. Discuss your answer.
C. Calculate the ARC elasticity of demand (midpoint formula) when the price moves from $6 to $2. Write the formula and show your work.
D. Redraw the Demand curve (only) in a new diagram. Demonstrate the Total Revenue change geometrically and indicate the Loss and Gain areas between the prices of $6 and $2 (Price has moved UP from $2 to $6).
E. In this diagram as above (part d), demonstrate and calculate the Consumer Surplus when price is set at $12 (P=12).
F. If for a product, a 10% increase in consumer income leads to a 20% decrease in sale, how would you evaluate the Income Elasticity of Demand? Is this a Normal Good or an Inferior good? Calculate the Income elasticity of Demand first and then give your explanations for both questions.
G. If a 10% increase in the product such as Y, leads to a 20% increase in the sale of Product X, then what can you say about the Cross Elasticity of Demand for X & Y? Are X & Y Substitutes or Complements? Calculate and Explain
Note: I am using this to compair to my own homework. Can you please discuss each question and please, if you choose to answer, PLEASE label the answers. This is the last Econ class I have to take and I really don't want to screw it up. And if you need to upload pictures for the disgrams please do, I really appriciate it.
Explanation / Answer
The points can be simply plotted.
The intersection of the supply and demand curve gives the equilibrium price and quantity
A)
eqm price = 9
eqm quantity = 17.5
B) At price = 14, supply exceeds demand.
government has fixed the price at a higher level than equlibrium. Since the demand is less it can be interpreted that the income of the general public must increase so that they can afford a higher price. SO by fixing a higher price, income level increases.
but there also comes a problem of surplus. the government needs to buy surplus to maintain a higher price.
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