SAIL is a major producer of steel. The demand for its steel is given by the following equation: Q, = 10,000 – 200 P, + 0.21 + 200 P. where Q, is steel demand in thousands of tons per year, P, is the price of steel in rupees per kg, I per capita income, and P, is the price of aluminum in rupees per kg. Initially, the price of steel is 110 per kg, per capita income is 50,000 and the price of aluminum is ? 350 per kg. (i) How much steel will be demanded at the initial price and income? (ii) What is the point price elasticity at the initial values? (iii) What is the point income elasticity at the initial values? (iv) What is the point cross elasticity between steel and aluminum? Are they substitutes or complements?

SAIL is a major producer of steel. The demand for its steel is given by the following equation: Q, = 10,000 – 200 P, + 0.21 + 200 P. where Q, is steel demand in thousands of tons per year, P, is the price of steel in rupees per kg, I per capita income, and P, is the price of aluminum in rupees per kg. Initially, the price of steel is 110 per kg, per capita income is 50,000 and the price of aluminum is ? 350 per kg. (i) How much steel will be demanded at the initial price and income? (ii) What is the point price elasticity at the initial values? (iii) What is the point income elasticity at the initial values? (iv) What is the point cross elasticity between steel and aluminum? Are they substitutes or complements?

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter4: Supply And Demand: An Initial Look

Section: Chapter Questions

Problem 3TY

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