Answer to Question #190813 in Microeconomics for Bornface

Question

a) Given the following demand function for beef (kg), P = 200 – 5Q i) By how much would the price have to fall for consumers to be willing to buy 1 more kg of beef per day? [5 marks] ii) If the price decreases by N$0.9, by how much will the demand changed? [5 marks]

Answer 1

Given,

The demand function for beef (in kg):

$P=200−5Q$

(i).

The slope of the demand function will tell how much price should decrease to increase the quantity of beef by 1 kg.

Slope$=\frac{\Delta P}{\Delta Q}$

Slope$=−5$

Since the slope is 5, the price should fall by $5 to buy 1 more kg of beef per day.

 (ii).

According to the slope if the price decreases by $5 then the quantity demanded increases by 1 kg. So if the price decreases by $1 then the quantity demand will increase by the following quantity.

$\$1=\frac1 5$

now if the price falls by $0.9

$\$1×0.9=\frac15×0.9$

$\$0.9=0.18 kg$

If the price falls by $0.9 then the quantity demanded will increase by 0.18 kg.