Question

Question 6 (1 point) In a city with a medium sized population, the equilibrium price for a city bus ticket is $1.00, and the number of riders each day is 10,800. The short-run price elasticity of demand is -0.60, and the short-run elasticity of supply is 1.0. Estimate the short run linear supply and demand curves for bus tickets Qd - 17,280 - 6,480P Q. - 0.0 + 10,800P Qd - 17.280 - 6,480P Qs - 0.0 - 10,800P Qc - 15,000 - 540 P Q: - 10 - 1800P Q -0.0.. 6,480P Q: - 200 - 10,800P

Answer 1

We are are given Qd=Qs=10800 at P=$1

Let the demand curve be

Qd=a+b*P

dQd/dP=b

Price elasticity of demand=(dQd/dP)*(P/Q)=b*(1/10800)=b/10800

We are given price elasticity of demand=-0.60. So,

b/10800=-0.6

b=-0.6*10800 =-6480

So, put b=-6480, Qd=10800, P=1 in demand equation

10800=a-6480*1

a=10800+6480=17280

Demand curve is given by

Qd=17280-6480*P

Let the supply curve be

Qs=c+d*P

dQs/dP=d

Price elasticity of supply=(dQs/dP)*(P/Q)=d*(1/10800)=d/10800

We are given price elasticity of demand=1. So,

d/10800=1

d=10800

So, put b=10800, Qd=10800, P=1 in demand equation

10800=c+10800*1

c=0

Supply curve is given by

Qs=0+10800P

Correct option is

Qd=17280-6480P

Qs=0+10800P