For questions 6 and 7, use point elasticity!
6. Consider the following straight line demand equation: P = 100 - 2Q
a) Prove that the price elasticity of demand at P = 50 is equal to 1.
b) Determine the price elasticity of demand at the following prices: 4, 28, 36, 52, 80, 96.
c) If tastes change such that the demand curve shifts to: P = 60 - 2Q, what is the nature of this change?
d) With this new demand equation, determine the price elasticity of demand using the same list (first four) of prices as in b).
7. Consider the following equation of a supply curve: P = 8 + 4Q
a) Determine the price elasticity of supply at the following prices: 8, 12, 16, 24, 56, 108.
b) Suppose that the supply shifts (due, say, to an improvement in technology) so that the new equation is: P = 4Q. Now, determine the price elasticity of supply at each of the prices in a).
c) Take this supply equation (in b)) and the demand equation (in 6c)) and find the equilibrium price and quantity in this market. How would the equilibrium change if the price axis intercept of the demand curve doubles?
