demand function of mr.hassan involving change in price

Question

Mr. Hassan demand function for rice is given by x=15+m(10p)^-1

where x=amount of rice demanded,m=income of the consumer,p=price of rice.Originally the income of Mr.Hassan is 4800 per month and the price of rice is 120 per kg.If the price falls to 100 per kg.calculate the total effect,substitution effect and income effect emanating from this change in price.

Answer 1

x = rice demand in kg

m = consumer income in $

p = price of rice per kg

 

Step #1

m = 4800

p = 120

x = ?

 

x = 15 + m(10p)^-1

 

x = 15 + (4800)*(10(120))^-1

 

x = 15 + (4800)*(1200)^-1

 

x = 15 + (4800)*(1/1200)

 

x = 15 + 4

 

x = 19

 

Solution:

 

For m = 4800 and p = 120 there is consumer demand for 19kg of rice

 

 

Hints to finish the problem:

1.  Although it take a minute longer, it's possible to achieve a high level of accuracy by clearly stating the values you have, and the values you want.

 

2.  Pay careful attention to units.  Units should definitely be given in your answer

 

3.  The problem asks you to calculate the (in plain terms) difference between p = 120 and p = 100.  Step #2 involves solving for p = 100

 

4.  The final results are given by specifically comparing the x values for p = 120 and p = 100