Market for good A 34 F Given: QD = 40-Price: Qs = Price; Complete the graph at t

Question

Market for good A 34 F Given: QD = 40-Price: Qs = Price; Complete the graph at the top of the page using the Qo and Qs equations given above by filling in the. BLANKS (8 points). Using the midpoint method, calculate the price elasticity of demand for Good A over the price range of 30 to 34. (3 points) The Income Elasticity for good A is +2 and consumer's income decreases by 10%. Assuming that Good A is in equilibrium as graphed above and the price of Good A remains constant, what is the new quantity of good A demanded? (4 points)

Explanation / Answer

Qd = 40 - P

Qs = P  

equlibrium at Qd = Qs

40 - P = P

2P = 40

P = 40/2

= 20

Q = 20

At first

on vetical axis shows price

next box (0 , 40 )

equilibrium P = 20

origin (0,0)

Horizontal axis

equlibrium Q = 20

quantity demand

downwaed sloping curve is demand curve

upward sloping curve is supply curve

intercept of demand curve with x axis (40,0)

b)

P Q

30 10

34 6

Ed by mid point formula  

Ed = [(Q2 - Q1)/(P2 - P1)][(P2+P1)/(Q2+Q1)]

= (34 - 30)/(6-10)][(6+10)(34+30)]

= - 0.25

C) income elasticity = % change in Q/%change in income

2 = % change in Q /10%  

% change in Q = 20 %

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