QUESTION 2

a) Explain the rationing functioning function of price in correcting market disequilibria

b) If the demand curve of a firm is and the supply curve is , compute the equilibrium price and quantity.

c) Compute and interpret the price elasticity of demand and the price elasticity of supply.

d) If the equilibrium price increases by 5% and equilibrium quantity increases by 15%, find and interpret the new price elasticities of supply and demand.

e) Graphically illustrate the effect that an increase in demand for this firms product would have on the short run equilibrium price and quantity.

QUESTION 2 a) Explain the rationing functioning function of price in correcting market disequilibria [5 marks] b) If the demand curve of a firm is Qd=3600550P and the supply curve is Qs=7100532P, compute the equilibrium price and quantity. [5 marks] c) Compute and interpret the price elasticity of demand and the price elasticity of supply. [6 marks] d) If the equilibrium price increases by 5% and equilibrium quantity increases by 15%, find and interpret the new price elasticities of supply and demand. [6 marks] e) Graphically illustrate the effect that an increase in demand for this firm's product would have on the short run equilibrium price and quantity. [3 marks]