QUESTION 1:Assume Tea brands ChotooChai and BaraChai are competing brands in the market. With arrival of winter season, ChotooChai announces good promotional deals. Using ‘Comparative Statics Analysis’ of demand and supply model:How will the managements of the two brands study the short-run and long-run impact on Tea Sales, after the announcement of promotions in the market of Tea?Demonstrate and explain, with clearly labelled two panel diagrams, the ‘Rationing Function’ and the Allocating or ‘Guiding Function’ of Price.QUESTION 2: Demand for Orange Juice is given as Qd = 5000 – 2500 P + 1200 I + 650 E – 255 Ps Suppose Income is I = Rs.500, Expectations E = 55, and Price of Ps = Rs 25.Find the Demand Equation.Using the demand function from part a.,Calculate Elasticity of Demand for price range of Rs.125 and Rs.155.What will be the ‘Price Elasticity of Demand’ at P = Rs.125?Interpret the Elasticity of Demand calculated in (C) above.

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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QUESTION 1:

Assume Tea brands ChotooChai and BaraChai are competing brands in the market. With arrival of winter season, ChotooChai announces good promotional deals. Using ‘Comparative Statics Analysis’ of demand and supply model:

How will the managements of the two brands study the short-run and long-run impact on Tea Sales, after the announcement of promotions in the market of Tea?
Demonstrate and explain, with clearly labelled two panel diagrams, the ‘Rationing Function’ and the Allocating or ‘Guiding Function’ of Price.

QUESTION 2: Demand for Orange Juice is given as

Qd = 5000 – 2500 P + 1200 I + 650 E – 255 Ps

Suppose Income is I = Rs.500, Expectations E = 55, and Price of Ps = Rs 25.

Find the Demand Equation.
Using the demand function from part a.,

Calculate Elasticity of Demand for price range of Rs.125 and Rs.155.

What will be the ‘Price Elasticity of Demand’ at P = Rs.125?
Interpret the Elasticity of Demand calculated in (C) above.

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