The demand and supply functions for the markets of two different toys are summarised in Table 1. Table 1: Demand and Supply of Two Types of Toys Type A Toy Type B Toy Demand: P=16-0.002Q Demand: P=6-0.005Q Supply: P=4+0.015Q Supply: P=-1.8+0.008Q i. Compute and interpret the price elasticity of demand for both toys when price increases from $3 to $6 in both markets while all other factors remain constant. Round your answers to 2 decimal places if necessary. ii. Based on your finding of price elasticity of demand for each of these two toy markets, predict change of quantity demanded and change of revenue for each toy when there is a 10% increase in the price. Apply relevant theories and use examples to analyse why price elasticities of demand for these two toys differ.
The
in Table 1.
Table 1: Demand and Supply of Two Types of Toys
Type A Toy Type B Toy
Demand: P=16-0.002Q Demand: P=6-0.005Q
Supply: P=4+0.015Q Supply: P=-1.8+0.008Q
i. Compute and interpret the
increases from $3 to $6 in both markets while all other factors remain constant.
Round your answers to 2 decimal places if necessary.
ii. Based on your finding of price elasticity of demand for each of these two toy
markets, predict change of quantity demanded and change of revenue for each toy
when there is a 10% increase in the price. Apply relevant theories and use
examples to analyse why price elasticities of demand for these two toys differ.
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