1. Suppose the demand for coffee mugs is represented by the following demand curve: Qd =...

1. Suppose the demand for coffee mugs is represented by the following demand curve: Qd = 50 – 2P. Further, suppose that the current price is $5. a. (5 points) What is the current quantity demanded? Show your work. b. (15 points) Calculate the current price elasticity of demand and show all your work. Interpret the number you calculated (I’m looking for more than just “elastic” or “inelastic". c. Suppose when the price of ice cream is $2 there are 60 units sold and when the price falls to $1 there are 100 units sold. Calculate and fully interpret the price elasticity of demand. d. List 3 goods based on their price elasticity of demand. The first good is the most inelastic and the third good is the most elastic. Fully justify your ranking.

Expert Solution

Answer a : Current Quantity demanded= 50-2P= 50-2($5)= 50-10= 40units

b : price elasticity of demand= % change in quantity demanded/%change in price

Price = $5 , Quantity demanded= 40 units

Price = $6 , Quantity demanded= 38 units

Price elasticity of demand =( 2/40)*100/ (1/5)*100= 5%/20%

E_d = 0.25

Price Elasticity of demand is less than 1. It shows that it is an inelastic demand.

C : price of ice cream= $2, qty demanded = 60 units

Price of ice cream= $1, qty demanded=100 units

E _d = % change in quantity demanded/% change in price= 66.67%/ 50%= 1.333

Price elasticity is more than 1. It means that there is an elastic demand.

D: Gasoline, water are price inelastic. As price increases demand does not decrease or consumption level remaim same.

Tea and oats are less inelastic. As price increase there consumption start decreasing but less than price.

Motorcycle or furniture as well as professional services are least inelastic. These things are greatly influence the least.

Rahul Sunny answered 2 years ago

Suppose that the demand for curve is QD = 1000-40P, (where QD is the number of...

Suppose that the demand for curve is QD = 1000-40P, (where QD is the number of gallons of liquor demanded and P is the price per gallon), and the supply curve for liquor is QS =60P (where QS is the number of gallons supplied). For all the questions below, graph and calculate (and label) all intercept, slopes and equilibrium points. a. Compute equilibrium prices and quantities in the absence of the tax. b. In an effort to reduce alcohol consumption,...

In another market, suppose that the demand and supply are represented by: qd = 400P-2 and...

In another market, suppose that the demand and supply are represented by: qd = 400P-2 and qS = 0.5P. (a) Calculate the consumer surplus at market equilibrium. (b) Suppose that now the government imposes tax at producer, in which producer must pay 5 units for every goods sold. How much is the reduction on consumer surplus? (c) Based on answer (b), do you think that the consumer experiences tax incidence? Why?

Suppose the demand curve for a monopolist is QD = 47,000 - 50 P, and the...

Suppose the demand curve for a monopolist is QD = 47,000 - 50 P, and the marginal revenue function is MR = 940 - 0.04Q. The monopolist's Marginal Cost = 40 + 0.02Q and its Total Cost = 250,000 + 40Q + 0.01Q2. a. Find the monopolist's profit-maximizing output and price. b. calculate the monopolist's profit/losses, if any. c. What is the Lerner Index for this industry at the monopolist's profit-maximizing output and price

Suppose the demand curve for beer is given by QD = 50 − 10P and the...

Suppose the demand curve for beer is given by QD = 50 − 10P and the supply curve for beer is given by QS= −10 +20P. Now, the government imposes a price ceiling of $1 in the market for beer. As a result, the producer surplus decreases. Now, a part of the initial producer surplus is part of the deadweight loss and a part of it is transferred to consumers. a) What is the amount of producer surplus that is...

The market for Soda was represented by the following demand and supply: Qd= -100P + 1150...

The market for Soda was represented by the following demand and supply: Qd= -100P + 1150 and Qs= 400P +100. After the FDA required additional information on calories on labels, the cost to the Bottling Co. increased and the Supply shifted to Qs= 400P + 150 a. What is the Pre-Regulation equilibrium quantity and price? b. What is the Post-Regulation Equilibrium price and quantity? c. What is the pre and post regulation producer surplus? d. Based on the change in...

suppose the supply curve and demand curve for the market of shoes is as follows: Qd=30-2p ...

suppose the supply curve and demand curve for the market of shoes is as follows: Qd=30-2p Qs=15+p Find equilibrium P and Q suppose a $2 / unit tax is imposed on the seller. Find the new equilibrium Q, Pb and Ps. Now rework the problem with at $2 / unit subsidy (a subsidy is the opposite of tax)

Suppose the supply curve and demand curve for the market of shoes is as follows: Qd=30-2P...

Suppose the supply curve and demand curve for the market of shoes is as follows: Qd=30-2P Qs=15+P Suppose a $2 tax is imposed on the buyer. Find the new equilibrium Q, Pb and Ps. SHOW YOUR WORK. Suppose a $2 subsidy is imposed on the seller. Find the new equilibrium Q, Pb and Ps. Show your work.

1. The monthly demand curve for Leather Jackets is: QD = 7,500 – 5P QD =...

1. The monthly demand curve for Leather Jackets is: QD = 7,500 – 5P QD = demand for Leather Jackets per month P = price of Leather Jackets per month One firms supply curve is: qS = 5 + 0.25P (all firms have the same supply function) 1a. What is the price of Leather Jackets per month if the total supply from all firms is 7,000 Leather Jackets per month? 1b. How many Leather Jackets will each firm supply and...

3) Suppose the demand curve for a particular product is given by Qd(P) = 600 –...

3) Suppose the demand curve for a particular product is given by Qd(P) = 600 – 20P. Suppose also that marginal revenue and marginal cost to a monopolist is described by the following two equations. Suppose price is measured in $/lb and quantity is measured in lbs. MR = 30 – (1/10)Q MC = (1/5)Q a) Determine the profit maximizing quantity, price, total revenue, and consumer surplus in this monopoly market.

The demand curve for turnip can be represented by the following equation: ? = 2000 −...

The demand curve for turnip can be represented by the following equation: ? = 2000 − 400? There are only two producers and the marginal cost to produce a turnip is $2 (There is no fixed cost). If the capacity of each firm is 600 output, calculate the price range of turnip under the Bertrand-Edgeworth Model.

Question