Consider a market whose demand and supply curves are described by the following equations: P =...
Consider a market whose demand and supply curves are described by the following equations: P = 40 - 2QD and P = 20 + 0.5QS. Please find the equilibrium price (P), equilibrium quantity (Q) and the price elasticity of supply (PES) at the equilibrium price.
Homework Answers
Demand is P = 40 - 2Q
Supply is P = 20 + 0.5Q
At equilibrium we have
Qd = Qs
40 - 2Q = 20 + 0.5Q
20 = 2.5Q
Q = 8 units
P = $24 per unit
PES = dQ/dP * P/Q
= 2 * 24/8
= +6.00
Thus, the equilibrium price (P) is $24 per unit, equilibrium quantity (Q) is 8 units and the price elasticity of supply (PES) at the equilibrium price is +6.00.
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