Question

1. Suppose the market for Japanese strawberries is represented by:

Supply: Q = 200 + 3P 2 Demand: Q = 1000 – 5P2

a. Find the market equilibrium price and quantity.

b. Calculate the price elasticity of demand for Japanese strawberries when the market is at the equilibrium. Show your steps.

Answer 1

Answer : a) At market equilibrium, Demand = Supply occur. So,

1000 - 5P^2 = 200 + 3P^2

=> 1000 - 200 = 3P^2 + 5P^2

=> 800 = 8P^2

=> P^2 = 800 / 8 = 100

=> P^2 = (10)^2

=> P = 10

From demand function we get,

Q = 1000 - 5(10)^2 = 1000 - 500

=> Q = 500

Therefore, here the market equilibrium price is P = 10 and quantity is Q = 500.

b) Price elasticity of demand (Ed) = (Qd / P) * (P/Q)

=> Ed = - 10P * (10 / 500)

=> Ed = - (10 * 10) * 0.02

=> Ed = - 2

Therefore, here the price elasticity of demand is - 2.