6.1 PROBLEMS

Question 6.1

This question uses the algebraic method of determining equilibrium from Appendix 3A. Suppose that the demand and supply for maple syrup is given by the following equations:

  1. Solve for the equilibrium price and quantity. Determine the price elasticity of demand and supply in equilibrium.

  2. Determine the unit-elastic point for this demand curve.

  3. Given Ppancake mix = 12 and a2 = –1.8 (the coefficient of the price of pancake mix in the expanded demand curve), determine the cross-price elasticity of demand at the equilibrium point.

  4. The incomes of consumers rises, which shifts the demand curve to P = 55.50 – 1.25Qd and at the same time an improvement in technology shifts the supply curve to P = 7.50 + 0.25QS. Solve for the new equilibrium price and quantity. Determine the price elasticity of demand and supply at this new equilibrium.

Question 6.2

This question uses the algebraic method of determining equilibrium from Appendix 3A. Suppose the monthly demand and supply for iPods are given by the following equations:

  1. Use the supply and demand curves given above to solve for the equilibrium levels of price and quantity. Determine the price elasticity of demand and supply in equilibrium.

  2. Given Y = 40 000 and a3 = 0.004 (the coefficient of the average consumer index from the expanded demand curve), determine the income elasticity of demand at the equilibrium point.

  3. Suppose instead that the offshoring of the production of iPods to a lower-cost country causes the supply curve to shift to P = 140 + 0.0005 QS. Derive the resulting new equilibrium levels of price and quantity. Determine the price elasticity of demand and supply at this new equilibrium.