Question: QUESTION TWO Given the following demand function: Q = 120-4P + 0.01M, where M is income and stands at K40,000 and the prevailing market price

QUESTION TWO Given the following demand function: Q = 120-4P + 0.01M, where M is income and stands at K40,000 and the prevailing market price is K10. a) Calculate the consumer surplus in this market. [2 Marks] b) What is this Market's willingness to pay? (Solve) [3 Marks] QUESTION THREE The respective elasticities of demand and supply for a product are -0.55 and 1. Further, it is observed that the price of this commodity is K80 whilst the prevailing quantity in the market is 950. a) By adopting a demand and supply concept of Qd = a + bP Qs = c + dP Use the information provided to estimate the values of a,b,c and d. [5 Marks] b) Using the estimated parameters, find the equilibrium price and quantity. [5 Marks]

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