1)Suppose that E(p) = 2/3 , where p represents the price of an item. Then the demand is

a) Elastic

b) Inelastic

c) Unitary

d) None of the above.

2)A recent trend in the restaurant industry is to use locally produced foods. Consequently, you are interested in the estimating the demand and supply for locally produced burritos in college towns. You have collected data on the price of burritos in each town, the quantity of burritos sold, the income of students, the local price of beef, and the local price of salsa.

a. Carefully explain how you would use this data to construct a consistent estimate of both the slope of the supply curve and the slope of the demand curve. Be careful to specify your estimation method and each step you would use to estimate each curve.

b. How would your answer change if instead of slopes, we wanted to estimate the elasticity of supply and the elasticity of demand?

1)Th correct answer is b Inelastic. When the elasticity of price is between 1 and 0, then the demand is said to be inelastic. This means that a change in price will result in a smaller change in the quantity demand.

2)Here, it is given that we need to estimate the demand and supply of locally produced burritos in the college town for which I have collected the data of price of burritos in each town, the quantity of the burritos sold, the college students income, and the price of inputs like salsa and beef.

a)

Here, assume that burritos market is an already established market wherein there are some producers of burritos in the market that will produce a specific quantity at different prices in each town; therefore, the supply curve of the burros is positively sloped and can be determined by aggregating the quantity produced by each producer at different prices.

Now, for demand curve derivation, we assume that the producers quoted of the burritos price as given; therefore, the demand for burritos will remain the same at this price and there will no change to it.

However, the intersection of both the burritos demand and burritos supply curve determine the break-even point, wherein both the optimal price and quantity of the burritos in the market are determined.

b)

We know that the slope of demand curve states the quantity of sale (demand) of burritos at a given price whereas the elasticity of demand (Ed) measures the pattern of sale of burritos when the price changes. Similarly, the elasticity of supply (Es) measures the pattern of supply of burritos when the price changes. Thus, the elasticity depicts the relation between one variable to another.