Question

Economics Help?

Suppose the demand schedule in a market can be represented by the equation QD = 500 – 10P, where QD is the quantity demanded and P is the price. Also, suppose the supply schedule can be represented by the equation QS = 200 + 10P, where QS is the quantity supplied.
1. Using the formulas above and the midpoint method, calculate the price elasticity of demand as the price goes from $15 to $20. Is demand elastic or inelastic?
2. Using the formulas above and the midpoint method, calculate the price elasticity of supply as the price goes from $15 to $20. Is supply elastic or inelastic?
3. Which has more elastic demand, supply or demand?

Answer 1

part 1

Explanation:

price elasticity of demand= change in quantity demanded`/`change in Price `*` `P/Q`

find change in QD and change in Price and apply in formula above to find PED

if %change in QD is smaller than %change in Price than the PED is inelastic
in other words if bigger changes in price leads to smaller changes in demand the PED is inelastic or if PED
similarly if change in demand is grater than change in price than PED is elastic

in order to find PED find change in QD and change in Price and apply in formula above to find PED

OR if PED<1 than it is inelastic
if PED>1 than it is elastic

to find QD at price 15 put in this formula

`QD = 500 – 10P`
`QD=500- 10(15)`
`QD=500-150`
`QD=350` AT PRICE 15.

Similarly find QD when price is 20

`QD=500-10(20)`
`QD=300` AT PRICE 20

so you found
`p=15 ------ QD=350`
`p=20------QD=300`

apply in formula
change in qd= `300-350=-50`
change in price`=20-15=5`
original`p=15`
original`QD=350`

so apply in formula `-50/5*15/350`
so `PED=3/7` or `0.43` neglecting negative sign
as

if PED<1 than it is inelastic
if PED>1 than it is elastic

thus PED is inelastic being less than 1

Hope this helps