Question

2. Demand and supply equations for Good X is given as: Demand: P=6 - (1/50) Q and Supply: P= 1 + (1/100) Q [P: Price, Q: Quantity] i. Given the above information find the equilibrium price and quantity for Good X. ii. What is the point elasticity of demand at equilibrium? Is it elastic, inelastic or unitary elastic? iii. What is the point elasticity of supply at equilibrium? Is it elastic, inelastic or unitary elastic? iv. If the price increases by $2.00. Using the arc elasticity formula calculate the price elasticity of demand between the initial equilibrium and this new point on the demand curve.

Answer 1

2 Demande Supply: Po 6 - 5 Q. Palt Q. i) At equilibrium demand must equal supply. 5-150 6 - IQ = lt so + 12 50 i 5- Lee => Q = sa 을 3 Price : po 3 Point elasticity of demand Ep = da P dp ER oly 50013 Eps -50 x 1508) Ep = Ep = – 0.8 Epl = 0.80 Demand is inedastic as 1 Epl<l. f) Р х Point elasticity of supply Ep = d Qs de Eps 100x (% 19%) = 1.6 IEpl> ; supply is elastic. (iv) with an increase $ 2. new price will be 14 and new Quantity demanded Q. 200 AO (LP, + P2)/2] in price by will be Arc Elasticity 3 [(8,4Q2)/2]

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