Question

In: Economics

Suppose the inverse demand function is given by ?=5?−5p=5q−5 where p is the market price and...

Suppose the inverse demand function is given by ?=5?−5p=5q−5 where p is the market price and q is the quantity demanded. Calculate price elasticity of demand. Round your answer to the first decimal place. There is no value for p.

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Solutions

Expert Solution

•P=5Q-5

•Price elasticity of demand= (P/Q)*(∆Q/∆P)

P= 5Q-5

P+5 = 5Q

Q= (P+5)/5

•∆Q/∆P= 1/5

• Since the value of (P/Q) is not given we can assume that it is constant say 1

So, elasticity of demand= 1× 1/5 = 0.2

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Rahul Sunny answered 2 years ago
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