Suppose that the demand for iron (the primary component of steel) is Q = P^(-a)? , where the exogenous parameter a>0 takes some fixed value. For all parts assume that the iron market is in equilibrium and you should simplify your answers as much as possible.
1. Identify the inverse demand curve for iron.
2. Discuss does the demand for iron satisfy the Law of Demand?
3. Determine the elasticity of demand for iron, as a function of Q and the parameter a? For parts (d)-(f) assume that a=2 and the supply of iron is Q = 8P.
4. Calculate the equilibrium price and the quantity of iron? If the value of a is unknown, then determine the equilibrium price and quantity as functions of a?
5. Illustrate a picture that shows the demand and supply curves (including two exact points on each curve) and the equilibrium.
6. Assume that? Increases from its initial value of a=2. Does this represent an increase or decrease in: supply; demand; quantity demanded; and quantity supplied?