a. At equilibrium Qs = Qd.
100 + 6P - 8Ph = 100 - 3P + 3Pb + 5Pc + 2Y
Plugging in all the values, we get,
100 + 6P- 8 * 4 = 100 - 3P + 3 * 8 + 5 * 6 + 2 * 11
68 + 6P = 176 - 3P
6P + 3P = 176 - 68
9P = 108
P = 108/9
P = $12
Q = 100 + 6 * 12 - 8 * 4 = 140 units.
PES = * P/Q
= 6
PES = 6 * 12/140 = 0.5142
PED = * P / Q
= -3
PED = -3 * 12/140
PED = - 0.2571
The absolute value of price elasticity of demand is less than one, this implies that the demand is inelastic that means the quantity demand will change by a lesser proportion than the change in price. The negative sign shows the inverse relation between the price and the demand.
The absolute value of price elasticity of supply is less than one, this implies that the supply is inelastic that means the quantity supplied will change by a lesser proportion than the change in price. The positive sign implies the positive relation between the price and the supply.
the demand and the supply at the equilibrium are inelatic.
b. to demand 28 fewer million kg than the equilibrium would be 140 - 28 = 112 units.
PED = * P/Q
-0.2571 = (28)/(P - 12) * 12/140
-0.2571 = 2.4/(P - 12)
P - 12 = -2.4/0.2571
P - 12 = -9.3348
P = -9.3348 + 12
P = 2.70
Rise in price = 12 + 2.70 = $14.70
c. IED = * Y/Q
IED = 2 * 11000/140
IED = 157.142
Yes, pork is a normal good as the income rises, the demand for pork increases by a greater proportion.
157.142 = % change in demand/+20%
157.142 * 20% = % change in demand
% change in demand = 31.428
d. The coefficient of income will remain the same and there will be no change in the coefficient of income with just dollars instead of thousads of dollars.
However, the income elasticity of demand will change.
IED =
IED = 2 * 11/140
IED = 0.1571
Now the income elasticity is less than one. The value of income elasticity is affected with this change. Now pork becomes an inferior good.
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