Market demand is given as Q_D= 120 - P.Market supply is given as Q_S= 4P.If price increases from $60 to $65,what is the price elasticity of demand

Question

Quizplus · Accepted Answer

- Initially, the price is $60, and the quantity demanded is Q = 120 - 60 = 60 units.
- The quantity supplied is Q = 4P, so when the price is $60, the quantity supplied is Q = 4*60 = 240 units.
- This means that there is a surplus of Qs - Qd = 240 - 60 = 180 units.
- When the price increases to $65, the quantity demanded decreases to Q = 120 - 65 = 55 units, and the quantity supplied increases to Q = 4*65 = 260 units.
- Now there is a surplus of Qs - Qd = 260 - 55 = 205 units.
- The percentage change in price is (65-60)/60 = 0.0833
- The percentage change in quantity demanded is (55-60)/60 = -0.0833
- Therefore, the price elasticity of demand is (0.0833)/(-0.0833) = 1.0
- The closest choice to 1.0 is C) 1.1, which is the best answer.

Market Demand Is Given as QD = 120 - P

Market Demand Is Given as Q_D= 120 - P