(10 marks) A local econometrician has estimated that the supply and demand curves for bungy-jumping are:...

A local econometrician has estimated that the supply and demand curves for bungy-jumping are:

Q_d = 260 – 4P

Q_s = -140 + 6P

1. Calculate the equilibrium price and quantity.

2. Calculate the elasticities of supply and demand at the equilibrium values of price and quantity. Briefly interpret these numerical values.

3. Suppose one year later, the supply curve is unchanged, but demand is now described by the equation:

Q’_d = 160 – 4P

Show on a graph what happens to the equilibrium price and quantity. Be sure that the demand and supply curves are touching both axis at the appropriate points. Also, be sure to label both axis, the supply curve, the old and new demand curves, and the old and new equilibrium points (instead of drawing the actual graph, briefly explain the graph instead. Explain all the curves, shifts, points and axis, etc).

Expert Solution

Rahul Sunny answered 2 years ago

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