A person’s demand for gizmos is given by the following equation:
q = 6 – 0.5p + 0.0002I
Where, q is the quantity demanded at price p when the person’s income is I. Assume initially that the person’s income is $40,000.
a. At what price will demand fall to zero? (This is sometimes called the choke price because it is the price that chokes off demand.)
b. If the market price for gizmos is $10, how many will be demanded?
c. At a price of $10, what is the price elasticity of demand for gizmos?
d. At a price of $10, what is the consumer surplus?
e. If price rises to $12, how much consumer surplus is lost?
f. If income were $60,000, what would be the consumer surplus loss from a price rise from $10 to $12?