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Assume that Country X has no domestic production of widgets. Its demand for widgets, therefore, is based exclusively on imports. Consider the import demand function

QM = 20 - 0.5PM, where PM is the price of imports.

(a) At what quantity does this import demand curve exhibit unit elasticity? If QM = 8, is import demand elastic or inelastic? What if the quantity demanded rises to 11?

(b) Now assume that the import demand function is written as a log-linear specification, ln(Q) = 20 - 0.5ln(P). What is the elasticity of this function, and how would you characterize it (that is, elastic, inelastic, unit elastic)? What happens to the elasticity if the quantity demanded changes?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M947080

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