Define market. Calculate government costs if she imposes a price of 200 FCFA per packet and buys excess. Calculate price elasticity of demand when price falls from 250 FCFA to 200 FCFA.

Question 5

a) A market in Economics refers to any place or system where buyers and sellers interact to exchange goods, services, or resources. This interaction facilitates the determination of prices and quantities traded.

b) From Table 2:

• i) If the government sets a guarantee price of 150 FCFA per packet of bread, this is known as a price floor or minimum price.

• ii) Calculate the costs to the government, if she imposes a price of 200 FCFA per packet of bread and decides to buy the excess in the market. At a price of 200 FCFA per packet: Quantity supplied ($Q_S$) = 200 packets Quantity demanded ($Q_D$) = 450 packets

  Based on the table, at a price of 200 FCFA, the quantity demanded (450 packets) is greater than the quantity supplied (200 packets). This indicates a shortage of $450 - 200 = 250$ packets, not an excess. Therefore, the government would not be buying an excess in this scenario.

• iii) Calculate the price elasticity of demand if price of bread falls from 250 FCFA to 200 FCFA per packet and identify whether it is elastic or inelastic.

  Step 1: Identify initial and final prices and quantities demanded from Table 2.
  Initial Price ($P_1$) = 250 FCFA
  Final Price ($P_2$) = 200 FCFA
  Initial Quantity Demanded ($Q_1$) = 300 packets (at 250 FCFA)
  Final Quantity Demanded ($Q_2$) = 450 packets (at 200 FCFA)

  Step 2: Calculate the percentage change in quantity demanded using the midpoint formula.

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