Suppose the estimated market demand for a computer is P=1000-0.04Q and the market supply is P=0.06Q.
(a) What would the market price and output of computer that clears the market (i.e. no excess supply or shortage of goods)? Please show work. Show this on a well labeled graph.
(b) Calculate the price elasticity of demand at the equilibrium price. What does your answer tell us about the market?
(c) Suppose an increase in consumer income by 10% shifted the demand to P=1200-0.04Q holding the supply constant. Suppose also that the price in the market is still at the price that you calculated in part (a). Calculate the income elasticity. What does your answer tell us about the market?
(d) Let’s suppose that this market is a monopoly market. Calculate the profit maximizing level of Q and P. Show this on a well-labeled graph.