Market demand is given as QD = 100 - P.Market supply is given as QS = 4P.If price increases from $40 to $44,what is the price elasticity of demand?

Question

Quizplus · Accepted Answer

At $40, the quantity demanded is QD = 100 - P = 100 - 40 = 60. The quantity supplied is QS = 4P = 4(40) = 160. Since QS > QD, there is a surplus of 100 (160 - 60), and price will tend to decrease.
At $44, the quantity demanded is QD = 100 - P = 100 - 44 = 56. The quantity supplied is QS = 4P = 4(44) = 176. Since QS > QD, there is still a surplus of 120 (176 - 56), even though price has increased.
To calculate the price elasticity of demand, we use the formula:
% change in quantity demanded / % change in price
% change in price = (44 - 40) / 40 = 0.1
% change in quantity demanded = (56 - 60) / 60 = -0.067
Price elasticity of demand = |-0.067 / 0.1| = 0.67
Therefore, the best choice is B.

Market Demand Is Given as QD = 100 - P