A vegetable fibre is traded in a competitive world market at a price of $9 per pound (lb).

Unlimited quantities are available for import into the USA at the world price (of $9 per pound).

The US domestic supply and demand for various prices are shown as follows:

Price ($) US supply

(million lb)

US demand

(million lb)

3 2 34

6 4 28

9 6 22

12 8 16

15 10 10

18 12 4

1.1. What is the equation for demand? (3)

1.2. What is the equation for supply? (3)

1.3. At a price of $9, calculate the point elasticity of demand and explain your answer. (3)

1.4. Assume that the price increases to $12. Calculate the point elasticity and arch elasticity

of demand and explain why there is a difference. (8)

1.5. In a free world market, what will the US price and level of fibre imports be? (3)