Question

Using the information below answer the following questions.

(Use the Midpoint (Arc) method)

If Qd = 750 - 30 P and Qs = 0 + 40 P

Where: Qd = Quantity of the good demanded Qs = Quantity of the good supplied (Note: Be sure to include the negative sign in your answer if appropriate)

Part 1: The Equilibrium Price is:

Part 2: The Equilibrium Quantity is:

Part 3: Price elasticity of demand between P1= 12.21 and P2= 9.21 is:

Part 4: Price elasticity of supply between P1= 12.21 and P2= 9.21 is:

Answer 1

Solution -

We Know that,

Equilibrium Condition,

Qd = Qs

750 - 30 p = 0+ 40 P

70 P = 750

Part 1

P = $ 10.71 Equilibrium Price

Put P = 10.71 in Qs for Quantity

Part 2

Q = 0 + 40 (10.71)

Q = 428.4 Equilibrium Quantity

Q= 428

Part 3: Price elasticity of demand between P1= 12.21 and P2= 9.21 is:

Put P1 and P2 in Demand for Quantity

750 - 30 P =Q1

Q1 =750 - 30 (12.21)

Q1 = 383.7

750 - 30 P =Q2

Q2 = 750 - 30 (9.21)

Q2 = 473.7

Now Midpoint

Ed= 473.7 - 383.7 / ( 473.7 + 383.7)/ 2 / (12.21 - 9.21 ) /(12.21 + 9.21 ) / 2

    = 0.0525 / 0.070

= 0.75

Part 4: Price elasticity of supply between P1= 12.21 and P2= 9.21 is:

Put P1 and P2 in Supply for Quantity

Qs = 0 + 40 P

Q1 = 40 (12.21)

Q1 = 488.4

Q2 = 40(9.21)

Q2 = 368.4

Now Midpoint

Es= 368.4- 488.4 / ( 368.4 + 488.4)/ 2 / (12.21 - 9.21 ) /(12.21 + 9.21 ) / 2

    = 0.070 / 0.070

= 1