Consider the competitive market for corn chips. This market has a supply curve that is given by: Qs = 100+ 10P.There are two types of consumers in this market, adults and children.
The demand for children is given by Qdc = 90-4P
The demand for adults is given by Qda = 70-16P
(a) What is the equilibrium price in the corn chip market. How many corn chips will be bought by children and how many by adults?
(b) What is the elasticity of demand for corn chips for adults and for children when the price falls from $4 to $2?
(c) A medical report indicates that corn chip eaters have a higher risk of heart attack than those who abstain. At the same time a new cost-reducing innovation in corn chip production is found. What are the effects on the equilibrium price and quantity of corn chips?