Comparative static analysis

Reference no: EM1369758

1. Mr. Capon is a butcher who recently raised the price of steak at his market from $1:50 a pound to $2:00 a pound. Correspondingly his sales dropped from 200 pounds per day to 100 pounds per day. Is the demand for steak at Capon's market elastic or inelastic? Explain. (show all works please) Given this circumstance, advise Mr. Capon on a pricing strategy to sell more or less.

2. Using average values find the coefficient of elasticity for the following:
Price..............Quantity
$45.................65,000
$55.................35,000

Explain your coefficient of elasticity.

3. The following relations describe the supply and demand for body lotions
Qd = 65,000 - 10,000 P
Qs = -35,000 + 15,000 P

Where Q is the quantity and P is the price of a body lotion, in dollars.
a. Find Qs, Qd, and shortage or surplus at prices; $6, $5, $4, $3, $2, and $1
b. What is the equilibrium price?
c. Using the law of Supply and Demand, comment on your market observation.

4. What is comparative static analysis? Given equilibrium of price and quantity, explain the impact of simultaneous shifts in demand and supply.

Reference no: EM1369758

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