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Qd = - 22 P +10 Pp + 0.05 I + 0.001A where Q is the...

Qd = - 22 P +10 Pp + 0.05 I + 0.001A where Q is the quantity of beef demanded in units of hundred pounds, P is the price for beef per pound, I is the average income of a household, Pp is the price for pork per pound, and A is the money spent on US brand Image Advertisement.

Assume you are part of the managerial team trying to create a report based on the following questions.

a) As of 2010, data shows that I=30,000 and Pp=20 and they will spend $100,000 for the Advertisement. Given the above information, write the demand equation (curve) as a function of price.

b) using the members of US Beef Association’s supply plan and current Korean supply of beef, the supply curve for beef in Korea is as follows: Qs = 840 + 8 P where Q is the quantity of beef supplied in hundred pounds and P is the price of beef per pound. What would be the equilibrium market price and quantity of beef?

c) Using the price and quantity you found in b), what is the price elasticity of demand for beef? Is it elastic or inelastic?

d) Find the cross-price elasticity between beef and pork? What kind of relationship between beef and sauce shows by the sign of the elasticity?

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Answer #1

FORMULAS:

CROSS PRICE ELASTICITY OF DEMAND = % change in quantity demanded for Product A / % change in the price of product B

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