Question

Just answer C and D. Please thanks

5) The graph below shows the demand curve for Wine. The demand equation for Wine is also given Wine QD = 120-10P QD a) Find the price and quantity intercepts. Show work and label both on the graph above lop=120 Demond, int ; 0.1 b) Calculate the price elasticity of demand between the following prices, P 2 and P elasticity formula is appropriate 4. Explain which EP (0-100 1o (L -2 U12) eemul

Answer 1

(c) Elasticity (as provided by question) = - 0.33

This means that as price rises (falls) by 1%, quantity demanded falls (rises) by 0.33%. Since absolute value of elasticity is less than 1, demand is inelastic, and a rise (fall) in price will increase (decrease) total revenue.

(d) Price elasticity of demand = (Change in QD / Average QD) / (Change in P /Average P)

When P = 4, QD = 120 - (10 x 4) = 120 - 40 = 80

When P = 6, QD = 120 - (10 x 6) = 120 - 60 = 60

Elasticity = [(60 - 80) / (60 + 80) / 2] / [(6 - 4) / (6 + 4) / 2]

= [- 20 / (140 / 2)] / [2 / (10 / 2)

= (- 20 / 70) / (2 / 5)

= - 0.71