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Price Elasticity of Demand and Supply

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Six (6) questions on Elasticity of Demand and Supply

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https://brainmass.com/economics/elasticity/price-elasticity-of-demand-and-supply-453134

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Elasticity Computations

1. Suppose that 50 units of a good are demanded at a price of $1 per unit. A reduction in price to $0.25 results in an increase in quantity demanded to 70 units. Show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in the price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve?

Given:
Q1 = 50
Q2 = 70
P1= 1
P2 = .20

What percentage would a 10 percent rise in the price reduce the qd?

Ep = Q2-Q1/P2-P1 = 70-50/.20-1 =20/.80 = -0.25
A 10% increase in price would result to 25% reduction in the quantity demanded.

2. Fill in the blanks.

P Q Price Elasticity Total Revenue
9 1 9
8 2 -1 16
7 3 -1 21
6 4 -1 24
5 5 -1 25
4 6 -1 24
3 7 -1 21
2 8 -1 16

3. Categories of price elasticity of demand

a. An Ep of 2.5 is Relatively elastic. The firm's ...

Solution Summary

The solution computes for the price elasticity of demand and supply. The step-by-step solutions are attached in a 3-page document file.

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A tutorial that explains how to calculate the Equilibrium price of a product, cross price elasticity of demand, Income elasticity of Demand and Elasticity of Demand.

The tutorial also explains how to determine the exogenous and endogenous variables in a function.

1. Suppose the market demand curve for a Product is given by Q = 250 - 5P and the market supply curve is given by Q = -50 + 25P.
1. What are the equilibrium price and quantity in this market?
2. At the market equilibrium, what is the price elasticity of demand?
3. Suppose the price in this market is $8. What is the amount of excess demand?

2. Suppose the market demand curve for a product is given by Q = 500 - 156P + 20I and the market supply curve is given by Q = -25 + 10P - 10K. Assume initially that I= 10 and K = 5.
1. What are the equilibrium price and quantity in this market?
2. What are the endogenous and exogenous variables in the equilibrium model?
3. Suppose K suddenly increases to 20. How will this affect the market equilibrium calculated in part 1?

3. Suppose demand for good A is given by Q = 500 - 10Pa + 2Pb + 0.70I where Pa is the price of Good A, Pb is the price of some other good B, and I is income. Assume that Pa is currently $10, Pb is currently $5, and I is currently $100.
1. What is the elasticity of demand for good A with respect to the price of good A at the current situation.
2. What is the cross price elasticity of the demand for good A with repect to the price of good B at the current situation?
3. What is the income elasticity of demand for good A at the current situation.

4. Suppose the market demand curve for a product is given by Q = 500 - 5P and the market supply curve is given by Q = 20P
1. What are the equilibrium price and quantity in this market?
2. Now suppose that the new demand curve for the same product is given by Q = 1000 - 5P and the market supply curve remains unchanged. What are the new equilibrium price and quantity in this market.

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