The following is a hypothetical estimate of a demand curve for butter over the period 2001-10. Qu = 145 – 1.5P-0.001r+2P. Where Qa is the quantity of butter sold in grams per person per week; Pis the price of butter (in pence per kg, at 2000 prices); Yis the annual disposable income per head (in £s at 2000 prices); Pa is the price of margarine (in pence per kg, at 2000 prices). (a) If Pis 50 pence, Yis £20 000 and Pa is 40 pence, what is the estimated value of Q? (b) If the price of buttr went up by 6 pence per kilo, all other things equal, what would happen to the estimated demand for butter? Going back to the original price of 50 pence, if the value of Y now rose to £22,000 what would happen to the estimated demand for butter?

The following is a hypothetical estimate of a demand curve for butter over the period 2001-10. Qu = 145 – 1.5P-0.001r+2P. Where Qa is the quantity of butter sold in grams per person per week; Pis the price of butter (in pence per kg, at 2000 prices); Yis the annual disposable income per head (in £s at 2000 prices); Pa is the price of margarine (in pence per kg, at 2000 prices). (a) If Pis 50 pence, Yis £20 000 and Pa is 40 pence, what is the estimated value of Q? (b) If the price of buttr went up by 6 pence per kilo, all other things equal, what would happen to the estimated demand for butter? Going back to the original price of 50 pence, if the value of Y now rose to £22,000 what would happen to the estimated demand for butter?

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

The following is a hypothetical estimate of a demand curve for butter over the period 2001–10.
Qa = 145 – 1.5P- 0.001Y+ 2P.
Where Qa is the quantity of butter sold in grams per person per week;
Pis the price of butter (in pence per kg, at 2000 prices);
Yis the anmual disposable income per head (in £s at 2000 prices);
Pa is the price of margarine (in pence per kg, at 2000 prices).
(a) If P is 50 pence, Yis £20 000 and P is 40 pence, what is the estimated value of Qa?
(b) If the price of butter went up by 6 pence per kilo, all other things equal, what would happen to
the estimated demand for butter?
(c) Going back to the original price of 50 pence, if the value of Y now rose to £22,000 what
would happen to the estimated demand for butter?
(d) What is the income elasticity of demand for butter according to your calculations in (c)?
What sort of good is butter according to this result?
(e) Again, going back to the original demand, if the price of margarine now rose by 10 pence
what would happen to the demand for butter?

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