The market for vanilla ice cream is given by the following information:
π
π = 800 β 30π
π£ + 10π
π
π
π = 250 + 30π
π£ β 10ππ
Where π
π
is the quantity demanded, π
π
is quantity supplied, π
π£
is the price of vanilla ice
cream, π
π
is the price of chocolate ice cream and ππ is the price of milk. Let π
π = 10 and ππ = 5. Calculate the equilibrium price and quantity in the vanilla ice
cream market. Compare the own-price elasticity of demand and supply at equilibrium. (4
At equilibrium, supply is equal to demand. So;
We know that and
hence;
, which the price of Vanilla ice cream at equilibrium.
Therefore, quantity supplied at equilibrium is
The quantity demanded at equilibrium will be
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