ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text:Question 1
A perfume product has the following market demand and supply equations:
QD = 50 - 5P
Qs = 10 + 3P
where P is, Qp 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.
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