Market demand is given as Q_D= 140 - 5P.Market supply is given as Q_S= 2P.If price increases from $21 to $23,what is the price elasticity of demand

Question

Quizplus · Accepted Answer

Firstly, we need to find the initial quantity demanded and the final quantity demanded.

Initial price, P1 = $21
Q1 = 140 - 5(21) = 35

Final price, P2 = $23
Q2 = 140 - 5(23) = 25

Using the price elasticity of demand formula, we get:

Price elasticity of demand = ((Q2 - Q1) / ((Q2 + Q1) / 2)) / ((P2 - P1) / ((P2 + P1) / 2))

Price elasticity of demand = ((25 - 35) / ((25 + 35) / 2)) / ((23 - 21) / ((23 + 21) / 2))

Price elasticity of demand = (-10 / 30) / (2 / 22)

Price elasticity of demand = -0.33 * 11

Price elasticity of demand = -3.63

Since the price elasticity of demand is a positive value by convention, we take the absolute value of the result. This gives us a value of 3.63, which is closest to choice C (3.7). Therefore, the correct answer is choice C.

Market Demand Is Given as QD = 140 - 5P

Market Demand Is Given as Q_D= 140 - 5P