1. Suppose that a market is characterised by the demand and supply equation. Demand: P= 220 - 4Q and Supply: P= 20 + 6Q. Calculate the equilibrium price and quantity.
2. Suppose that the current market price and quantity are the values that you calculated in Question 1. Now suppose that the price increases by 10$. Calculate the price elasticity of demand using the mid-point formula. Hint: you would have to calculate the new quantity demanded first.
3. Fully interpret the value of the price elasticity of demand that you calculated in Question 2. You must also explain the meaning behind the number that you have just calculated.
4. Suppose that you are selling the product that is being discussed in the previous questions. What would you do to the product's price if the aim is to increase total revenue? Explain your answer in detail.
5. Using full sentences, explain how you would use different types and values of elasticity of demand to determine if goods are substitutes, complements, normal or inferior.