Question 1

The demand and supply of coke is given as below:

Qd=45-0.2P

and Qs=P+20

(a) Calculate the equilibrium price and quantity of coke

(b) Because income of consumers have increased, the new demand

function of coke is Qd=75-0.2P

What will happen to the equilibrium price and quantity due to

the increase in the consumers income.

(c) Solve for the new equilibrium price and quantity and explain

your answers in relation to (b) above.

Question 2

The demand for Ideal Milk is given as below:

Qdⁱ=200-Pi-6Pc-0.2Y

where Pi is price of Ideal milk, Pc is price of Peak Milk and Y is income of the consumer. Given that Pi is 1.00, Pc is 0.80Gp and Y is 200.00

(a) Calculate the own price elasticity of demand for Ideal Milk and interpret the result.

(b) Calculate the cross price elasticity of demand for Ideal Milk and interpret fully your result.

(c) Calculate the income elasticity of demand for Ideal Milk and interpret your result.