1. Assume that demand for Irish potatoes at Chimbiya Market is represented by the equation P...
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1. Assume that demand for Irish potatoes at Chimbiya Market is represented by the equation P = 20 -0.50d and supply by the equation P = 5+ 0.250s, where QD and Qs are quantity demanded and supplied in metric tons, respectively, and Pis price in US Dollars. (a) Solve the two equations to determine equilibrium price (Pe) and equilibrium quantity (Qe). (b) If the Government intervenes with a price increase of 50%, by how much would the available quantity of Irish potatoes change in the market? [3 (c) Show the market situation graphically to substantiate your answers above. Solution: Figure 1 below (d) What would you suggest as a sustainable management of the market situation caused by the Government intervention on price above? (e) Now calculate price elasticity of demand for the Irish potatoes, characterizing and interpreting the elasticity coefficient. [4 marksl 1. Assume that demand for Irish potatoes at Chimbiya Market is represented by the equation P = 20 -0.50d and supply by the equation P = 5+ 0.250s, where QD and Qs are quantity demanded and supplied in metric tons, respectively, and Pis price in US Dollars. (a) Solve the two equations to determine equilibrium price (Pe) and equilibrium quantity (Qe). (b) If the Government intervenes with a price increase of 50%, by how much would the available quantity of Irish potatoes change in the market? [3 (c) Show the market situation graphically to substantiate your answers above. Solution: Figure 1 below (d) What would you suggest as a sustainable management of the market situation caused by the Government intervention on price above? (e) Now calculate price elasticity of demand for the Irish potatoes, characterizing and interpreting the elasticity coefficient. [4 marksl
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Economics
ISBN: 978-0073375694
18th edition
Authors: Campbell R. McConnell, Stanley L. Brue, Sean M. Flynn
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