Quantity of A traded 10,000 15,000 Price of A Household Income Price of B $1.10 $3000 $1.50 $0.90 $2500 $1.20 Determine the price elasticity of demand for A, income elasticity of demand for A and the cross price elasticity of demand between A and B using the mid-point formula. Based on the elasticities, classify A in terms of its price and income elasticities of demand and establish the relationship between product A and product B. (i) (ii) Given that the price of product A increases by 5%, household income increases by 3% and the price of product B increases by 2%, explain and compute the effect on the revenue from product A, assume each of the changes occurs separately. (b) The demand and supply functions of wheat is given as P = 20 – 0.05Q and P = 10 + 0.05Q, respectively. Solve for the equilibrium price and quantity in the wheat market. If the government implement a price floor of $18 per unit of wheat to help the wheat farmer, compute the consumer surplus, the producer surplus and the deadweight loss in the wheat market. Discuss your answers with a suitable wheat market diagram. %3D
Quantity of A traded 10,000 15,000 Price of A Household Income Price of B $1.10 $3000 $1.50 $0.90 $2500 $1.20 Determine the price elasticity of demand for A, income elasticity of demand for A and the cross price elasticity of demand between A and B using the mid-point formula. Based on the elasticities, classify A in terms of its price and income elasticities of demand and establish the relationship between product A and product B. (i) (ii) Given that the price of product A increases by 5%, household income increases by 3% and the price of product B increases by 2%, explain and compute the effect on the revenue from product A, assume each of the changes occurs separately. (b) The demand and supply functions of wheat is given as P = 20 – 0.05Q and P = 10 + 0.05Q, respectively. Solve for the equilibrium price and quantity in the wheat market. If the government implement a price floor of $18 per unit of wheat to help the wheat farmer, compute the consumer surplus, the producer surplus and the deadweight loss in the wheat market. Discuss your answers with a suitable wheat market diagram. %3D
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:Quantity of A traded
10,000
15,000
Household Income | Price of B
$3000
Price of A
$1.10
$1.50
$0.90
$2500
$1.20
(i)
Determine the price elasticity of demand for A, income elasticity of
demand for A and the cross price elasticity of demand between A and B
using the mid-point formula. Based on the elasticities, classify A in terms
of its price and income elasticities of demand and establish the
relationship between product A and product B.
Given that the price of product A increases by 5%, household income
increases by 3% and the price of product B increases by 2%, explain and
compute the effect on the revenue from product A, assume each of the
changes occurs separately.
(ii)
(b)
The demand and supply functions of wheat is given as P = 20 – 0.05Q and
P = 10 + 0.05Q, respectively. Solve for the equilibrium price and quantity in the
wheat market. If the government implement a price floor of $18 per unit of wheat
to help the wheat farmer, compute the consumer surplus, the producer surplus
and the deadweight loss in the wheat market. Discuss your answers with a suitable
wheat market diagram.
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