The weekly demand function for butter in the Toronto- Canada is Qd = 20000 - 500Px + 25M + 250Py, where Qd is quantity in kilograms purchased per week, Px is price per kg in dollars, M is the average annual income of a Canadian consumer in thousands of dollars, and Py is the price of a kg of margarine. Assume that M = 20, Py = $2, and the weekly supply function is such that the equilibrium price of one kilogram of butter is $14. a. Calculate the cross-price elasticity of the demand for butter (i.e. in response to changes in the price of margarine) at the equilibrium. What does this number mean? Are they (substitutes/ complements or no relation)? b. Calculate the price elasticity of demand for butter at the equilibrium. What can we say about the demand for butter at this price-point? (Indicate the type of elasticity.)
The weekly demand
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