HW2 - HW 2 Abigail Palmer 902048862 1. In 1998, Americans...

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HW 2 Abigail Palmer 902048862 1. In 1998, Americans smoked 470 billion cigarettes, or 23.5 billion packs of cigarettes. The average retail price was $2 per pack. Statistical studies have shown that the price elasticity of demand is -0.4, and the price elasticity of supply is 0.5. Using this information, derive linear demand and supply curves for the cigarette market. %ΔQ/%ΔP= ε = -0.4 = %ΔQ/1 So, the percent change in quantity demanded for every dollar increase in the price of a pack of cigarettes is -40%. The linear demand curve is therefore: Qd = -9.4p + 42.3 %ΔQ/%ΔP= ε = .5 = %ΔQ/1 So, the percent change in quantity supplied for every dollar increase in the price of a pack of cigarettes is 50%. The linear supply curve is therefore: Qs = 11.75p 2. The table below shows the retail price and sales for instant coffee and roasted coffee for 1997 and 1998. a. Using this data alone, estimate the short-run price elasticity of demand for roasted coffee. Derive a linear demand curve for roasted coffee. ε = %ΔQ/%ΔP = [(850-820)/820] / [(3.76-4.11)/4.11] = 0.0366/-0.08516 = -.43 Therefore, the price elasticity of demand for roasted coffee is -.43. The linear demand curve is: Qd = -85.72p +1172.35 b. Now estimate the short-run price elasticity of demand for instant coffee. Derive a linear demand curve for instant coffee. ε = %ΔQ/%ΔP = [(70-75)/75]
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HW2 - HW 2 Abigail Palmer 902048862 1. In 1998, Americans...

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