Question

Use the following data to answer the next 4 questions.

Price                                                    Qsup                Qdem  

10.00                                                   20,000             40,000

11.00                                                   25,000             35,000

12.00                                                   30,000             30,000

13.00                                                   35,000             25,000

14.00                                                   40,000             20,000

What is the equilibrium price __________ and the equilibrium quantity in a competitive market

Calculate the elasticity of demand as prices increase from $10.00 to $11.00 and indicate whether this is inelastic or elastic demand.

Answer 1

The equilibrium price is 12 because the demand equals the supply. Here the demand is 30000 units and supply is 30000 units.

Price elasticity of demand = Percentage change in quantity/ percentage change in cost

The price increases for 10 to 11 and as a result, the quantity demanded decreases from 40000 to 35000

Percentage change in quantity = 40000-35000/40000 = 5000/40000 = 12.5%

Percentage change in cost = 11-10/10 = 1/10 = 10%

Price elasticity of demand = 12.5/10%

Price elasticity of demand = 1.25

Price elasticity of demand is 1.25 and the product is price elastic in nature.

answered by: anonymous