(a) Q(P) = 80-2P (b) Q(P)=2p-5 (c) Q(P)=a-bP 3. Suppose the supply curve for piz

Question

(a) Q(P) = 80-2P (b) Q(P)=2p-5 (c) Q(P)=a-bP 3. Suppose the supply curve for pizza is given by QS 6P, where QS is the quantity offered for sale when the prices is P. Also, suppose the demand curve for pizza is given by QD = 70-2P1, where QD is the quantity of pizza demanded when the price is P and the level of income is I. 6. a) Find the equilibrium P and Q when 1 = 2. b) Find price-elasticity of demand at the equilibrium when I 2, and give an interpretation in terms of percents and classify the elasticity (elastic or inelas- tic). c) Find the income-elasticity of demand at the equilib- rum when I = 2, and give an interpretation in terms of percents. What type of good is this (normal, infe- rior, luxury). d) Find the equilibrium P and Q as a function of I. e) Find the price elasticity of demand as a function of P and I and determine when this is unitary elastic. f) Find the income-elasticity in terms of P and I.

Explanation / Answer

A) At equilibrium,demand = supply

That is, 6P = 70-2PI

Or, 6P = 70-2P(2)

10P = 70

P* = $7

Q* = 42

B) Price elasticity of demand: (dQ/dP)(P/Q)

Price elasticity of demand = -4(7/42)

Price elasticity of demand = -0.67 (inelastic)

C) Income elasticity of demand = (dQ/dI)(I/Q)

Income elasticity of demand = (-2P)(2/42) = (-2*7)(2/42)

Income elasticity of demand = -0.67 (inelastic and inferior)

D) At equilibrium, 6P = 70-2PI

6P + 2PI = 70

P* = 70/(6+2I)

Q* = 6P* = 420/(6+2I)

Note: As per Chegg guidelines, first four subparts are to be answered

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