Given: Qdx = 200 - 2Px + 10Py + .002ln Qsx = 8Px - 5C What is the relationship b
ID: 1224924 • Letter: G
Question
Given: Qdx = 200 - 2Px + 10Py + .002ln Qsx = 8Px - 5C What is the relationship between good x & good y? Explain Is x a normal or inferior good? Explain Given Py = $10, In = $50, 000, C (costs) = $20/unit, find equilibrium. Calculate demand price elasticity at equilibrium and interpret. Calculate Supply Price Elasticity at equilibrium and interpret Calculate Income Elasticity at equilibrium and interpret Calculate Cross Price Elasticity at equilibrium and interpret Suppose Py increased to $20 and C (costs) increased to $40/unit. Find the new equilibrium and illustrate the changes. Using the new equilibrium P and Q, suppose the government instituted a price of $60 ' this market. Is this a price floor or a price ceiling? Calculate Qdx, Qsx), Quantity exchanged and the excess demand or supply that will occur.Explanation / Answer
Equilibrium at Qd=Qs
200-2Px+10*10+0.02*50000=8Px - 5*20
10Px = 200+100+1000 + 100
10Px = 1400
Px = 140
At Px = 140, Qs = 8*140-5*20 = 1120-100 = 1020
Now elasticity of supply = (dQ/dPx)*(P/Q) = 8*140/1020 =1.098039, a 100 percent change in its price will cause the supply to change by almost 110 percent, the supply therefore is elastic.
Income Elasticity =(dQ/dIn)*(In/Q) = 0.02*50000/1020 =0.980392, elastic, means 1 % change in income will change the demand by almost the same percentage.
Cross elasticity = (dQ/dPy)*(Py/Q) = 10*10/1020=0.0980392, the products are not related
New Equilibrium at Qd=Qs
If Py=20 and C=40
200-2Px+10*20+0.02*50000=8Px - 5*40
10Px = 200+200+1000 + 200
10Px = 1600
Px = 160
At Px = 140, Qs = 8*160-5*40 = 1280-200 = 1080
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