Question

2.1 Louis Vuitton, a designer of luxury goods, is interested in analysing the domestic market for Monogram bags. The staff estimated the following equations for the demand and supply of Monogram bags: The demand for Monogram bags is Qd = 10 000 + 0.5I + 0.4A – 200P The supply of Monogram bags is Qs = –15 000 + 100P where Q is the quantity per year, P is price, I is income per household and A is advertising expenditure.

2.1.1 If A = R15 000 and I = R30 000, what is the demand curve? (3)
2.1.2 Given the demand curve in Question
2.1.1, what is the equilibrium price for Monogram bags? (3)
2.1.3 What is the equilibrium quantity of Monogram bags? (2)
2.1.4 If consumer incomes increase to R45 000, what will the impact on equilibrium price and quantity of Monogram bags be? (5)
2.2 The income elasticity for most staple food, such as wheat, is known to be between zero and one.
2.2.1 As incomes rise over time, what will happen to the demand for wheat? (1)
2.2.2 What will happen to the quantity of wheat purchased by consumers? (1)
2.2.3 What will happen to the percentage of their budgets that consumers spend on wheat? (1)
2.2.4 All other things being equal, are farmers likely to be relatively better off or relatively worse off in periods of rising incomes? (1)
2.3 Consider the following demand curve: Qd = 500 – ½P
2.3.1 Calculate the (point) price elasticity of demand when price is R100. Is demand elastic or inelastic? (3)
2.3.2 Calculate the (point) price elasticity of demand when price is R700. Is demand elastic or inelastic? (3)
2.3.3 Find the point at which point elasticity is equal to –1. (2)

Answer 1

2.1 Louis Vuitton, a designer of luxury goods, is interested in analysing the domestic market for Monogram bags. The staff estimated the following equations for the demand and supply of Monogram bags: The demand for Monogram bags is Qd = 10 000 + 0.5I + 0.4A – 200P The supply of Monogram bags is Qs = –15 000 + 100P where Q is the quantity per year, P is price, I is income per household and A is advertising expenditure.

Step-by-step explanation: