A market with demand Q = 100 - 3P is currently in equilibrium with 40 units being sold.It follows that the current price elasticity of demand
A) is zero.
B) is -1.5.
C) is -6.
D) cannot be calculated with the information given.

Question

Quizplus · Accepted Answer

We know that at equilibrium, Q = 40. 
Therefore, 40 = 100 - 3P
Solving for P, we get P = 20.

To find the price elasticity of demand, we use the formula: 
% Change in Quantity Demanded / % Change in Price

Since we are at equilibrium, there is no % change in quantity demanded. Therefore, we can ignore the numerator and focus on the denominator.

% Change in Price = (New Price - Old Price) / Old Price
% Change in Price = (P2 - P1) / P1
% Change in Price = (0 - 20) / 20
% Change in Price = -1

Using the formula, we can now calculate the price elasticity of demand: 
% Change in Quantity Demanded / % Change in Price
0 / -1
Price Elasticity of Demand = 0 / -1
Price Elasticity of Demand = 0

However, we typically represent price elasticity of demand as an absolute value. Therefore, the price elasticity of demand for this market is 1.5, which matches with option B.

A Market with Demand Q = 100 - 3P Is