Suppose that you have the following information on the supply and demand curves

Question

Suppose that you have the following information on the supply and demand curves for imported sugar in the US: -2.67 + 0.041-0.17P and Qs=-3.33 +0.83P, where QD ls quantity demanded of imported sugar (millions of pounds); 0s is quantity supplied of imported sugar (millions of pounds); is national income index (currently 1-100) and P is price per pound (in cents) of imported sugar. 1. On a sheet of graph paper, construct the supply and the relevant intercept values for each curve. Calculate and illustrate in your graph the equilibrium price of imported sugar. 3. Calculate the price elasticity of demand at the 4. Calculate the income elasticity of demand at current s. Calculate the elasticity of the supply at the equilibrium 6. What do the elasticities tell you about the demand and equilibrium price and quantity level of income. price and quantity supply of imported sugar? How much imported sugar is influenced by the increase of 10 units in the national income index? Dose it make sense?

Explanation / Answer

Ans 2)

Equilibrium is achieved when Qd=Qs

2.67+0.04I-0.17P=-3.33+0.83P

2.67+0.04I-0.17P=2.67+4-0.17P=-3.33+0.83P

6.4=P and Q=6.67-0.17(6.4)=5.59 units

Ans 3)

Price elasticity=dQ/Q*P/dP=(-0.17)*(6.4/5.6)=-0.1942

INcome elasticity=dQ/dI*(I/Q)=0.04*(100/6.4)=0.667

ELasticity of Supply=dQs/dP*P/Qs=0.83*(6,4/5,6)=0.9486

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