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In: Economics

. The following is the annual demand function for good A:                 QDA = 400 –...

. The following is the annual demand function for good A:

                QDA = 400 – 20PA + 10PB + 0.01Y

where PA is the price of good A; PB is the price of another good, good B; Y is income.

  1. Is good A a normal good or an inferior good? Explain.
  2. Is good B a complement or a substitute for good A? Explain.

Assume that the current price of good B is £5, income is £50 000, and the annual supply function for good A is:

                QSA = 100 + 10PA

  1. Calculate the equilibrium price and quantity.
  1. Calculate price elasticity of demand if the price of good A rises by £5 from the equillibrium price and the demand decreases by 7% and what does this show about the product ?

  1. Calculate the price elasticity of supply if the amount supplied increases by 26.60 units (from the equillibrium) and this results in a decrease in price of 4%. Suggest what this figure shows             

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Expert Solution

Rahul Sunny answered 7 months ago
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