Department

MGTS - EconomicsCourse Code

ECON 261Professor

donaStudy Guide

FinalThis

**preview**shows half of the first page. to view the full**1 pages of the document.**The price elasticity of demand for oatmeal is constant and equal to −1. When the price of

oatmeal is $10 per unit, the total amount demanded is 6,000 units.

a) Write an equation for the demand function. q = 60, 000/p. Graph this demand function

below with blue ink. (Hint: If the demand curve has a constant price elasticity equal to _,

then D(p) = ap_ for some constant a. You have to use the data of the problem to solve for

the constants a and _ that apply in this particular case.)

(b) If the supply is perfectly inelastic at 5,000 units, what is the equilibrium price? $12. Show the

supply curve on your graph and label the equilibrium with an E.

(c) Suppose that the demand curve shifts outward by 10%. Write down the new equation for the

demand function. q = 66, 000/p. Suppose that the supply curve remains vertical but shifts to the

right by 5%. Solve for the new equilibrium price 12.51 and quantity 5, 250.

(d) By what percentage approximately did the equilibrium price rise?

It rose by about 5 percent. Use red ink to draw the new demand curve and the new supply

curve on your graph.

(e) Suppose that in the above problem the demand curve shifts outward by x% and the supply

curve shifts right by y%. By approximately what

percentage will the equilibrium price rise? By about (x − y)

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