# Supply and demand graph; elasticity of demand

Price of Steaks Supply of Steaks Demand for Steak (Shortages) or Surplus
25 30 10
20 20 12
15 15 15
10 10 20
5 5 30

a. Using the above date please create a supply and demand graph
b. Indicate on the graph the point of market equilibrium
c. Complete the last column indicating at each price level whether the market has a surplus or a (shortage) and by what amount

2.. A restaurant that goes by the name Road Kill Cafe is contemplating a T-shirt advertising promotion. Monthly sales data from T-shirt shops marketing the "Eat More Squirrel" design indicate that the demand curve for the T-shirts can be described as:
Q = 300 - 5P

Where Q is T-shirt sales and P is price.
a. How many T-shirts could the cafe sell at \$5 each?

b. What price would they have to charge to sell 200 T-shirts?

c. Calculate the own price elasticity of demand for T-shirts at a price of
\$20.

3.

a. Price change of shoes = 10%
Qty. Change of shoes purchased = 8%

What is the Elasticity of Demand? Is it elastic or inelastic?

b. Price Change of Auto's = 15%
Qty. Change of Auto's purchased = 20%

What is the Elasticity of Demand? Is it elastic or inelastic?

c. Your income increases by 12%
Your Purchases increase 6%

What is the Income Elasticity? Is it elastic or inelastic?

4. The demand for new recreational vehicles (motor homes) in the United States is highly cyclical and sensitive to diesel fuel prices and interest rates. Given these characteristics, describe the effect of each of the following on the quantity demanded or the demand for new motor homes. Indicate whether the effect of each of the following is an upward or downward movement along a given demand curve or instead involves an outward or inward shift in the relevant demand curve for new motor homes. Explain your answers.

a. A decrease in the average price of new motor homes.

b. An increased fear of traveling by air because of terrorist threats.

c. A fall in the price of diesel fuel (used in many motor homes) because of a peaceful resolution of the war in Iraq.

d. A significant rise in advertising by cruise ship operators.

5. In the aftermath of the September 11 terrorist attacks, the quantity sold of airline tickets in 2002 fell by a large percentage when compared to 2001. During the same time period the average price for airline tickets also fell. The law of demand states that â??the quantity demanded of a good varies inversely with its price.â? Does the observed change in the purchase and price of airline tickets violate the law of demand? Why or why not?

5. Calculate the 4 firm Oligopoly concentration ratio using the following numbers:

a. Total Industry Sales = \$1,000,000

b. Sales of the Top 4 firms are:

\$175,000
\$150,000
\$125,000
\$100,000

Solution Summary

This post shows how to create supply and demand graph. It addresses multiple questions of pricing, quantitative sold, elasticity of demand, income elasticity and oligopoly

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Rohtas Kumar, MBA

Rating 4.9/5

Active since 2004

BEng, Birla Institute of Technology and Science, India
MBA, Delhi University
CFA (Indian accrediation not US) , Institute of Chartered Financial Analysts of India
Ph.D, Indian Institute of Management Bangalore, India

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