(i) Assume that the demand for smoked salmon is represented by the following demand curve: P = 100 - 8Q.
Draw a diagram representing the demand curve and calculate the price elasticity of demand when the price equals $20.
(ii) Now assume that there is an increase demand so that the new demand curve is:
P = 100 - 4Q.
On the same diagram used in (i) represent the new demand curve and calculate the price elasticity of demand when price equals $20.
(iii) Now assume there is a further increase in demand so that the new demand curve is: P = 200 - 8Q.
On the same diagram used in (i) represent the new demand curve and calculate the price elasticity of demand when price equals $20.
(iv) Can any relationship be established between the price elasticity of demand and the slope of a linear demand curve?
(b) (Consider good A the demand for which is Q = 100 when consumer income is $150 per week. When consumer income is observed to increase to $250 per week demand for good A is Q = 200.
(i) Using the mid-point method, calculate the income elasticity of demand for good A.
(ii) What does this tell us about good A?