Author Question: The following equations represent the demand and supply for kumquats. QD = 60 - 3P QS = -20 + 5P ... (Read 35 times)

fahad

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The following equations represent the demand and supply for kumquats.
  QD = 60 - 3P
  QS = -20 + 5P
 
  What is the equilibrium price (P) and quantity (Q - in thousands) of kumquats?
  A) P = 20; Q = 10 thousand B) P = 5; Q = 20 thousand
  C) P = 30; Q = 5 thousand D) P = 10; Q = 30 thousand

Question 2

If the price elasticity of demand for chocolate is -2.0 what should we expect would happen to consumption of chocolate if the price falls by 10? What about a 50 decrease?
 
  What will be an ideal response?



lcapri7

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Answer to Question 1

D

Answer to Question 2

Consumption of chocolate should increase by 20. If the price falls by 50 the increase in consumption may be less than 100. The reason is that price cut is moving consumers into the inelastic portion of the demand curve. In other words, the absolute value of the price elasticity of demand for chocolate may no longer be 2.0 but rather much lower and even be less than 1.0.



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