Question

the market demand and supply curves of a commodity are represented as p=10 2Qd and p=2 + 2Qs. what is the equilibrium price? What is the coefficient of the price elasticity of demand? would u increase the price of the good?

Answer #1

Market demand

P=10-2Qd

Market supply

P=2+2Qs

In equilibrium

Market demand=Market supply

10-2Q=2+2Q

2Q+2Q=10-2

4Q=8

Q=8/4

Q=2 units of output

Substituting Q into price equation

P=10-2Qd

P=10-2(2)

P=10-4

P=$6

since the coefficient of price elasticity of demand is (-1.5) which is elastic, so with the increase in the price of the good, the quantity demand will decrease more rapidly compare to change in the price. Hence it is not good to increase the price of the good.

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