3, A demand equation for rice is Quantity = 100-10(Price) + 5(Income). Show your
ID: 1145774 • Letter: 3
Question
3, A demand equation for rice is Quantity = 100-10(Price) + 5(Income). Show your calculations in responding to these questions. a) What is the quantity when P= 10 and Income = 20? b) What is the price elasticity of demand when the Price is 10 and the Income is 20? c) What is the income elasticity of demand at this price and quantity? 4. Consider the effect of a $1 per pound subsidy paid to sellers of organic peaches. Assume the supply elasticity is 2.0 and the demand is completely inelastic at 1000 units (price elasticity of demand is zero). Explain and illustrate your calculations with words and a diagram. (I want numbers.) (a) What is the effect of the $1 per pound subsidy on the price paid by buyers? (b) What is the effect on profits of organic peach producers?Explanation / Answer
Q = 100 - 10(Price) +5 (Income) .....(1)
a)
Q = 100 - 10(10) +5(10)
= 100 - 100 +50
= 50
b)
Q = 100 -10(10) + 5(20)
= 100 - 100 +100
=100
Price Elasticity of Demand = (dQ/dP )*P/Q
dQ/dP = -10
P =10
Q= 100
= 10*(10/100)
= -1
c)
Q = 100 -10(10) + 5(20)
= 100 - 100 +100
=100
Income Elasticity of demand = dQ/dI(I/Q)
dQ/dI = 5
Income = 20
Q =100
= 5(20/100)
= 1
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