Suppose that the Inverse Demand Curve for recreational Cannabis is given as: P = 14.60 - 0.40
Question:
Suppose that the Inverse Demand Curve for recreational Cannabis is given as: P = 14.60 - 0.40 [Qd] per gram.
i. After determining the NORMAL Demand Curve from the Inverse demand curve above, determine the Quantities Demanded, Qd in Millions of grams, if the Price, P is reduced from $11.00 per gram to $10.00 per gram AND the value of the Price Elasticity of Demand over the "arc" of this change. (3 Marks)
ii. Carefully explain how each of the "sign" and the "magnitude" of the elasticity determined in part i above would be interpreted? (2 Marks) iii. Suppose that in response to a reduction in Price, P for Cannabis-based Gummi Bears from $12.00 to $10.00 per package results in a reduction in of 0.75 million grams at every price point from the original Demand Curve. Using this information, determine the elasticity of grams of Cannabis in response to the change in Price of the Gummi Bears. (3 Marks) iv. Carefully explain how each of the "sign" of the elasticity determined allows us to describe the "type" of relationship between the Cannabis and Gummi Bears AND the interpretation of the "magnitude" of the elasticity? (2 Marks)