Assume the current price of corn chips is $2 per packet. The demand elasticity is 1 (ignoring the negative sign) and current consumption (i.e. quantity demanded) is 40 million packets per week. Suppose that the manufacturer raises the price of corn chips to $4 per packet.
a) Derive the demand equation.
b) What will happen to weekly consumption as price increases to $4?
c) Suppose the supply equation is P=2+Q. Find out the market equilibrium price and equilibrium quantity.
d) Given the above supply and demand equations, calculate the surpluses for both consumer and producer.
e) Now suppose the supply curve shifts and the equation of new supply curve is P=4+Q. Do you think market exist?