Question

In: Economics

Supposed that the inverse demand for tires is P = 30 + .00025I - .5Qd and...

Supposed that the inverse demand for tires is P = 30 + .00025I - .5Qd and the current market price is $11 and average income (I) is $10,000.

Calculate the markets total demand, price elasticity of demand and consumer surplus. Draw the demand curve and identify the price quantity and label the axes for price and quantity to support answer.

Solutions

Expert Solution

P = $ 11, income, I = $ 10,000

Plug in the given value in the equation we get

The equation is

Differentiating above equation wrt Q we get

(Since, I is independent of Q)

Elasticity of demand can be calculated using the following formula

Elasticty of Demand, e = - 0.1279 (Inelastic)

The inverse demand function is

When P = 0

When QD = 0

Consumer Surplus

CS = $ 1161

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Rahul Sunny answered 2 years ago
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