Reference no: EM132364778

2.1. What would you expect to happen to spending on food at home and spending on food in restaurants during a decline in economic activity? How would income elasticity of demand help explain these changes?

2.2. The equation for a demand curve has been estimated to be Qd = 100 - 10P + 0.5Y,where Q is quantity, P is price and Y is income. Assume P = 9 and Y = 100.

2.2.1. Interpret the equation.

2.2.2. At a price of 9, what is price elasticity?

2.2.3. At an income level of 100, what is income elasticity?

2.2.4. Now assume income is 120. What is price elasticity at P = 12?

2.3. The demand for a cola-type soft drink in general is Q = 20 - 2P, where Q stands for quantity and P stands for price.

2.3.1. Graphically illustrate the equation and prove by using point elasticity of demand that the elasticity coefficients differ at various points on the equation. Show it on the graph.

2.3.2. Calculate arc elasticity at the interval between P = 5 and P = 6.

2.3.3. At which price would a change in price and quantity results in approximately no change in total revenue? Why?