1. (50 pts.) Suppose the demand function for the Toyota Camry is given by Qd = 5
ID: 1253184 • Letter: 1
Question
1. (50 pts.) Suppose the demand function for the Toyota Camry is given by
Qd = 500 -12PC + 10PH - 5PG + 0.0001M, where PC is the price of the Toyota Camry (in thousands), PH is the price of the Honda Accord (in thousands), PG is the price of gas (per gallon) and M is income. Further, suppose the supply curve for the Toyota Camry is given by Qs = 20PC - 55.
a. What is the demand curve for the Toyota Camry if the price of the Accord is $25,000, gas is $2 per gallon and income is $50,000?
b. What is the equilibrium price and quantity in the market for Toyota Camrys?
c. Is demand elastic or inelastic at the equilibrium price?
d. What is the cross price elasticity of demand at equilibrium?
e. What is the income elasticity of demand for Camrys at equilibrium?
I NEED TO SEE THE WORK FOR THIS PROBLEM PLEASE!
Explanation / Answer
a) Qd = 500 - 12Pc + 10(25) - 5(2) + 0.0001(50,000)
= 500 - 12 Pc + 250 - 10 + 5
So Qd = 745 - 12 Pc
b) Qs = 20Pc - 55
At equilibrium, we have Qd = Qs
So 745- 12Pc = 20 Pc - 55
Solving this we get,
Pc = 25
And Qd= Qs= 445
c) Elasticity = (Q/Pc).(Pc/Q)
= (-12).25/445
= -0.67
So we have an inelastic demand at equilibrium price.
d) Cross Price elasticity =( Q/PH).(PH/Q)
= 10.(25/445) = 0.56
Since its positive, so we can say tht accord is like a substitute for camry.
e) Income elasticity = (Q/M)(M/Q)
= .0001(50000/445)
= 5/445
= 0.01
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