1 farah is a mocha latte lover her demand function for mocha lattes is
1. Farah is a Mocha Latte lover. Her demand function for Mocha Lattes is given by: Q = 20-3P
Where Q and P denote the quantity and price of Mocha Lattes, respectively. Let the market equilibrium price for a
cup of Mocha Latte be 4 KD. Answer the following questions:
a. Calculate the price elasticity of Farah's demand for Mocha Lattes using the point elasticity method at a price
of 1 KD.
b. Derive Farah's marginal benefit function from drinking Mocha Latte.
c. What is the equilibrium quantity of Mocha Lattes will Farah end up buying?
d. Draw a rough sketch of Farah's demand curve and show all intersections with the horizontal and vertical
e. Label the consumer surplus area and the total expenditures area on your graph in part (d).
f. Calculate Farah's total expenditure on Mocha Lattes.
g. Calculate Farah's consumer surplus from consuming Mocha Lattes using the following approaches:
i. Geometric area based on your sketch in part (d).
h. Calculate the extra gain that Farah gets in her consumer surplus when the Mocha Latte price reduces to 2
i. Label the area associated with the gain found on part (h) on a new rough sketch. Label the critical points
that define the location and size of that area on the vertical and horizontal axes.
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