Question

In: Economics

Consider the market for butter in Dammam. The demand and supply relations are given as follows:...

Consider the market for butter in Dammam. The demand and supply relations are given as follows:

Demand: QD = 300 - 2P + 2I

Supply: Qs = 3P - 25PM - 25

Where I is the average income and P is the price of butter and PM is the price of milk.

(a) Assume that I = 25 and PM=2. Calculate:

Equilibrium price of butter (P): ________________

Equilibrium quantity of butter (Q):_________________

(b) If I = 25, calculate the own-price elasticity of demand of butter at P=100. Is the demand elastic or inelastic?

Eb=. . Demand is ___________________

(c) If P = 100, calculate the income elasticity of demand of butter at I=25. Is the demand elastic or inelastic?

EI=. . Demand is ___________________

(d) If P = 100, calculate the cross-price elasticity of supply of butter at PM=5.

EbM=. .

Expert Solution

I've attached the solutions for the questions down below. Refer the same to get an idea on the procedure.

Hope this helps. Drop a comment for clarification, if any. Cheers!

Rahul Sunny answered 1 year ago

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