( Need help with e-g only)
Q2: The estimated Canadian processed pork demand and supply functions
are as the followings:
QD = 100 – 3 p + 3 pb + 5 pc + 2 Y,
QS = 100 + 6 p - 8 ph where
Q is the quantity in million kilograms (kg) of pork per year;
p is the dollar price per kg,
pb is the price of beef per kg,
pc is the price of chicken per kg,
ph is the price of hogs per kg, and
Y is the average income in thousand dollars.
Suppose that pb = $8 .00 per kg, pc = $6 .00 per kg, ph = $4 per kg, and Y = $11.
Answer the following questions. (Note that you need to show your calculations and explain your results to receive full credit!)
a) Assuming ceteris paribus, calculate price elasticity of supply and demand at the equilibrium price and quantity under the conditions stated in above and explain your results. Are the demand and supply at equilibrium elastic? Explain.
b) Using the price elasticity of demand, calculate how much the price would have to rise for consumers to demand 28 fewer million kg than the equilibrium quantity?
c)What is the income elasticity of demand at the market equilibrium quantity, where
Y=$11? Is pork a normal good?
Assuming all else is unchanged, if the average income increases by 20%, what would be the expected change in the demand for pork?
d) If the demand function (QD = 100 – 3 p + 3 pb + 5 pc + 2 Y) is then re-estimated using just dollars instead of thousand dollars (i.,e when income is measured in thousand dollars), what will be the effect on the coefficient for Y and the income elasticity at the market equilibrium, calculated in (c), with other conditions remaining the same? Calculate the income elasticity of demand and explain your results.
e) If other things held constant, how would the income elasticity of demand change if the price of pork (p) were reduced to $22? Would the demand be more inelastic with respect to income?
f) What is the cross price elasticity with respect to the price of beef (pb) and of chicken (pc) at the market equilibrium quantity under the conditions stated above where
pb = $4 .00 per kg, pc = $3 .00 per kg? Are they Substitutes or Complements? Explain.
g) Calculate the elasticity of supply for the following prices by using the supply function above?
p = $5,
p = $15 , and
p = $120 and
p → $∞ per kg?
Note that Qs = 100 + 6 p - 8 ph where ph = $4.