The price elasticity of demand for oatmeal is constant and equal to −1. When the price of oatmeal is $10 per unit, the total amount demanded is 6,000 units.
(a) Write an equation for the demand function. ________. Graph this demand function below with blue ink. (Hint: If the demand curve has a constant price elasticity equal to , then D(p) = apε for some constant a. You have to use the data of the problem to solve for the constants a and that apply in this particular case.)
(b) If the supply is perfectly inelastic at 5,000 units, what is the equilibrium price? ______. Show the supply curve on your graph and label the equilibrium with an E.
(c) Suppose that the demand curve shifts outward by 10%. Write down the new equation for the demand function. ________. Suppose that the supply curve remains vertical but shifts to the right by 5%. Solve for the new equilibrium price ______ and quantity ________.
(d) By what percentage approximately did the equilibrium price rise? _______. Use red ink to draw the new demand curve and the new supply curve on your graph.
(e) Suppose that in the above problem the demand curve shifts outward by x% and the supply curve shifts right by y%. By approximately what percentage will the equilibrium price rise?