Answer in Microeconomics for Abc #173231
The market for vanilla ice cream is given by the following information:
= 800 − 30
+ 10
= 250 + 30
− 10
Where
is the quantity demanded,
is quantity supplied,
is the price of vanilla ice
cream,
is the price of chocolate ice cream and is the price of milk. Let
= 10 and = 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;
“Qd=Qs”
“(800-30Pv+10Pc)=(250+30Pv-10Pm)”
We know that “Pc=10” and “Pm=5”
hence; “800-30Pv+10(10)=250+30Pv-10(5)”
“30Pv+30Pv=800+100+50-250”
“Pv=12” , which the price of Vanilla ice cream at equilibrium.
Therefore, quantity supplied at equilibrium is “250+30(12)-10(5)”
“=560”
The quantity demanded at equilibrium will be “800-30(12)+10(10)”
“=540”
