4. The equation for a demand curve has been estimated to be Q = 100 – 10P + 0.5Y where Q is quantity, P is price, and Y is income. Assume that P = 7 and Y = 50.

Question

a. Interpret the equation.
b. What is price elasticity at P = 7 and arc elasticity at the interval between P = 6 and P=7.
c. What is income elasticity at Y = 50 and arc elasticity at the interval between Y = 50 and P=60.
d. Now assume that income is RM70. What is the price elasticity at P = 8? Also, calculate arc elasticity at the interval between P=7 and P= 8.

Answer 1

A. Q=100-10*7 +0.5*50
Q= 100-70+25
Q= 55

Answer 2

45

Answer 3

The equation for a demand curve has been estimated to be Q = 100 - 10 P + 0.5 Y, where Q is quantity, P is price, and K is income. Assume P = 7 and Y = 50.
a. Interpret the equation.
b. At a price of 7, what is price elasticity?
c. At an income level of 50, what is income elasticity?