economics

answer the questions with numbers and some writing

Question 2

The demand for Milk is described by the following relationship between price (P, measured in £s) and quantity (Q, measured in thousands of litres):

P = 1200 – 5Q

The supply of Milk is similarly represented by the following:

P = 120 + 3Q

a) if the Government grants a subsidy of £0.04 per litre to Milk producers, calculate the new equilibrium price and quantity.
[3 marks]

b) calculate the price elasticity of demand associate with the price change calculated in part (b) above. [4 marks]
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