Question

1.    We are examining the market for gold picture frames in Ontario. Given below are the demand schedule and supply schedule for this product for one year. Accurately graph the demand and supply curves on one graph and determine equilibrium in this market. Label the graph and axises properly. State where equilibrium is (both price and quantity), don’t just point to it on the graph. Make sure you have the price and quantity demanded on the correct axis.   (5 marks – 4 marks for graph and 1 mark for equilibrium)

 

 

 

Price	Quantity Demanded
$45	1,800,000
$60	1,575,000
$95	1,330,000
$100	1,300,000
$125	1,195,000
$160	1,085,000
$185	900,000
$210	745,000

Price	Quantity Supplied
$45	645,000
$60	740,000
$95	865,000
$100	910,000
$125	1,195,000
$160	1,750,000
$185	1,925,000
$210	2,100,000

 

a.   Using the data found in Question 1, calculate the elasticity of demand and elasticity of supply at each price change in the market for gold picture frames using the midpoint formula for both supply and demand. Because you are calculating the change between two levels, you will have 7 calculations for the 8 prices.  (2 marks – 1 mark each for correct demand and correct supply elasticities)

 

Price	Quantity Demanded	Elasticity of Demand	Quantity Supplied	Elasticity of Supply
$45	1,800,000	.465	645,000	.
$60	1,575,000	.3381	740,000	.480
$95	1,330,000	.451	865,000	.344
$100	1,300,000	.378	910,000	.994
$125	1,195,000	.390	1,195,000	1.220
$160	1,085,000	.1.283	1,750,000	1.532
$185	900,000	.1.492	1,925,000	.657
$210	745,000		2,100,000	.730

                                                                                            

b.   Based on your elasticity of demand calculation, if the price of gold picture frames rises from $100 to $125 will total revenue go up or down? Explain. You need to answer the first part of this question by explaining how you interpreted the elasticity of demand at this point. How much will revenue change (in dollar terms)?  (2 marks – 1 mark for calculation, one mark for explanation using elasticity)