Question 1 A perfume product has the following market demand and supply equations: Qp = 50 - 5P Qs = 10 + 3P where Pis, Qo and Qs are quantity demanded and supplied of perfume, respectively. a) What is the equilibrium price and quantity? Calculate using the arithmetic method. b) Draw demand and supply curves for prices £0, £1, £2 .. £8. c) Suppose consumers' income increases and perfume is considered as a normal good. As a result, the new demand equation is Qo = 70-5P. Find the new equilibrium price and quantity of perfume. d) Your economist friend told you that because of the change in demand described in part (c), price elasticity of demand changed. Is your friend right? Explain. e) Use the demand equation in part (c) to compute price elasticity of demand between £4 and £5. Use the mid-point (arc) method.

Question 1 A perfume product has the following market demand and supply equations: Qp = 50 - 5P Qs = 10 + 3P where Pis, Qo and Qs are quantity demanded and supplied of perfume, respectively. a) What is the equilibrium price and quantity? Calculate using the arithmetic method. b) Draw demand and supply curves for prices £0, £1, £2 .. £8. c) Suppose consumers' income increases and perfume is considered as a normal good. As a result, the new demand equation is Qo = 70-5P. Find the new equilibrium price and quantity of perfume. d) Your economist friend told you that because of the change in demand described in part (c), price elasticity of demand changed. Is your friend right? Explain. e) Use the demand equation in part (c) to compute price elasticity of demand between £4 and £5. Use the mid-point (arc) method.

Survey of Economics (MindTap Course List)

9th Edition

ISBN:9781305260948

Author:Irvin B. Tucker

Publisher:Irvin B. Tucker

Chapter4: Markets In Action

Section: Chapter Questions

Problem 19SQ

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