Question

must be newly drawn by hand. Mark penalty imposed if any of these instructions are NOT followed strictly. Question 1(12 marks) Suppose the following is the demand equation of the famous flower shop, Brighten in Hong Kong and the current price charged by Brighteryis $600 for a bunch of roses: Qd = 5000 - 2P where P is the unit price of a bunch of roses and Qd is the quantity demanded (in bunch of roses) (a) Use the midpoint method to calculate the price elasticity of demand if Brighten decreases the unit price of a bunch of roses from $600 to $400. Show your workings. (Round your answer in two decimal places). (5 marks) (b) Identify the type of price elasticity of demand and explain briefly whether you support the price adjustment of Brighten based on your findings in (a) from the perspective of Brighten.(7 marks) Question 2 (28 marks) Suppose the following is the market condition for the market of cupcake. Qd = 900 - 20P, where Qd is the quantity demanded (in units) and P is the price (in dollar term). Qs = -600 + 30P, where Os is the quantity supplied (in units). (a) Define market equilibrium. Calculate the equilibrium price and equilibrium quantity of the cupcake market. Show your workings. Round your answer in integers if applicable. (4 marks)

Answer 1

. Qd = 5000-2P a) Mid point formula = %a in quantity demanded % A is price. (Q2-QU (Q+Q)/2 Pitp x Q2-Q, (P₂ - P.) Qi+Q2 P.-P. (P + 2)/2 Pi = 600, Q. = 5000 -2x600 = 3800 P = 400, Qc = 5000 - 2x 400 + 4200 Ed = 600 + 400 3800 +4200 4200-3800 400-600 = 1000 a 8000 40o - 200 = 2 1 Ed> 1 so Elastic Demand or More than Unit Elastic Demand When demand is elastic & price decreases. Istotated revenue Increases & vice-versa. CamScanner

Lia Market equilibrium ir attained where quantity demanded ů equal to quantig supplied, Qd =Qs 900 - DOP = -600 + 302 900 + 600 = 50P 1500 =50P Q = 900 - dox 30 P-30 Q = 900 - 600 C-300) CoS z £xbacex height = I x 300 x 45-30) z 150 X 15 (2250 0 300 900 Q. P.S = 1 *300* (30-40) - 150 x 10 -1500) Total Surous = CS tpos = 2250+ 1500 Scanned with =(370) CamScanner e

Yes, market is efficient because there is no dead weight loss.