Answer:
A. Apple Pie Market Not perfectly competitive
B. Demand Curve Equation : q = 8.84 - 0.16p
C. Price Elasticity of Demand : 0.8 , 1.25
Explanation:
A. The Apple pie market is not perfectly competitive because the perfectly competitive market has large no of buyers & sellers, the demand is perfectly inelastic (infinite demand at given constant prices). However in this market , apple pie demand (sales) are responding to price change , so its not perfectly competitive
B. Demand curve is the graphical representation of price, demand. The Demand curve function : q = a - bp ; where q = quantity, p = price, a = autonomous demand , b = represents price demand relationship & is negative because of negative price demand relationship (Law of Demand).
Putting q & p given values : 4 = a - 30b ; 5 = a - 24 b. Solving these two equations for a & b , we get : a = 8.84 , b = 0.16 . So, the demand curve equation becomes : q = 8.84 - 0.16p & plotting this equation , we get demand curve.
C. Price Elasticity of Demand is responsiveness of demand to price change. Formula : %change in demand/ %change in price = ∆Q /∆P X P/Q
P Q
4 30 (*)
5 24 (**)
4.5 27 (***)
Ped (*, **) = ∆Q /∆P X P/Q = (6 / 1) x (4/30) = 0.8
Ped (*, **) = (3 / 0.5) x (4/30) = 0.8
Ped (**, ***) = (3 / 0.5) x (5/24) = 1.25
