In: Economics
Q1=40-0.5P1 is the demand function of good
1.Assume
(i) That the linear demand function for another commodity good 2
intersects this function at the point P1=8
(ii) Show that the price elasticity of demand for good 1,ED1 is
half that of good 2 at the point of intersection and express the
demand function for good 2 in algebraic form
Given, the demand function is
. At
, the demand is
or
. The elasticity will be
or
or
. The elasticity of good 1 at the point will be
or
.
Suppose the second demand curve is
. The elasticity would be
or
or
. According to the statement,
, and hence, we have
(as the elasticity will be at that certain point) or
. Hence, the demand function of good 2 will be
. To find a, we put the point coordinates of price and
quantity as
or
or
. The demand function of good 2 will hence be
.