Question

1) The estimated Canadian processed pork demand and supply functions are as the followings: Q D = 172 – 20 p + 20 p b + 3 p c + 0.002 Y, QS = 178 + 40 p - 60 p h where Q is the quantity in million kilograms (kg) of pork per year; p is the dollar price per kg, pb is the price of beef per kg, pc is the price of chicken per kg, ph is the price of hogs per kg, and Y is the average income in dollars. Suppose that p b = $4 .00 per kg, p c = $3 .00 per kg, p h = $1 .50 per kg, and Y = $12, 500. Answer the following questions. In each question show your calculations and explain their results! a) Assuming ceteris paribus, calculate price elasticity of supply and demand at the equilibirum price and quantity under the conditions stated in above and explain your results. Are the demand and supply at equilibrium elastic? Using the price elasticity of demand, calculate how much the price would have to rise for consumers to demand 33 fewer million kg than the equili - birum quantity. b)What is the income elasticity of demand at the market equilibrium quan - tity, where Y=$12500? Is pork a normal good? Assuming all else unchanged, if the average income increases by 30%, what would the expected change in the demand for pork be? c) If the demand function (Q D = 172 – 20 p + 20 p b + 3 p c + 0.002 Y) is then reestimated using just thousand of dollars instead of dollars, what will be the effect on the coefficient for Y and the income elasticity at the market equilib - rium, calculated in (b), with other conditions remaining the same? Printed by Wolfram Mathematica Student Edition c) If the demand function (Q D = 172 – 20 p + 20 p b + 3 p c + 0.002 Y) is then reestimated using just thousand of dollars instead of dollars, what will be the effect on the coefficient for Y and the income elasticity at the market equilib - rium, calculated in (b), with other conditions remaining the same? d) If other things held constant, how would the income elasticity of demand change if the price of pork (p) were reduced to $2? Would the demand be more inelastic with respect to income? e) What is the cross price elasticity with respect to the price of beef (p b ) and of chicken (p c ) at the market equilibrium quantity under the conditions stated above where p b = $4 .00 per kg, p c = $3 .00 per kg?

Answer 1