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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume that demand and supply are a simple line. If at the different prices, quantity of demand and price is shows as under, then determine the demand and supply equation. Demand (D) Supply (S) Price (P) 2 40 50 5 20 60
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