Assume that Country X has no domestic production of widgets. Its demand for widgets, therefore, is based exclusively on imports. Consider the import demand function
QM = 20 - 0.5PM, where PM is the price of imports.
(a) At what quantity does this import demand curve exhibit unit elasticity? If QM = 8, is import demand elastic or inelastic? What if the quantity demanded rises to 11?
(b) Now assume that the import demand function is written as a log-linear specification, ln(Q) = 20 - 0.5ln(P). What is the elasticity of this function, and how would you characterize it (that is, elastic, inelastic, unit elastic)? What happens to the elasticity if the quantity demanded changes?