1. (25pts) A person’s demand for gizmos is given by the following equation:q = 24 -...

1. (25pts) A person’s demand for gizmos is given by the following equation:q = 24 - 2p + 0.0008I

where, q is the quantity demanded at price p when the person’s income is I. Assume initially that theperson’s income is $160,000.

a.At what price will demand fall to zero? (This is sometimes called the choke price because it is the price that chokes off demand.)

b.If the market price for gizmos is $40, how many will be demanded?

c.At a price of $40, what is the price elasticity of demand for gizmos?

d.At a price of $40, what is the consumer surplus?

e.If price rises to $48, how much consumer surplus is lost?

f.If the price drops to $30, how much consumer surplus is gained?

g.If income were $200,000, what would be the consumer surplus loss from a price rise from $40

to $48? Why is it different than the change in CS surplus obtained in 1.e.?

Expert Solution

Rahul Sunny answered 2 months ago

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