Problem: Assume that the demand for welding services is D(P) = δ - ?P, where ?>0 and δ>0 are exogenous parameters. The baseline case is ? = ½ and δ = 34.
Assume that the inverse supply function in this market is PS(Q) = 4 + 10Q + Q2. Parts (p)-(s) use only the supply function, not the demand function.
Continuing to assume the baseline case, calculate the elasticity's of supply and demand, at the equilibrium point.
For the next three parts, assume that the market starts in the baseline equilibrium, and we will consider small changes away from that equilibrium.
Suppose that a shift in one curve causes price to rise by 6%. Is it possible that this shift causes an increase in equilibrium quantity, and if so then what would be that percentage decreases in quantity?