Consider the following hypothetical market. The equilibrium price is $10 and the equilibrium quantity is 20...

Consider the following hypothetical market. The equilibrium price is $10 and the equilibrium quantity is 20 units. The own-price elasticity of demand is -0.5 and the own-price elasticity of supply is 0.75. If price increases from $10 to $12, what will be the new level of quantity demanded? If necessary, round to the nearest two decimal points.

Solutions

Expert Solution

We know that

Price elasticity of demand = %∆ QD / %∆ Price

%∆ Price = 12 - 10 / 10 × 100 = 20%

And given

Elasticity = -0.5

-0.5 = %∆ Qd / 20%

%∆ Qd = -0.5 × 20 = -10 %

It means that when price increase by 20% the demand decrease by 10 %

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Explain Market equilibrium, equilibrium price, and equilibrium quantity

At the current market equilibrium, the price of a good equals $40 and the quantity equals 10 units.

(Please explain steps and logic behind them)Exercise 3: SupplyAt the current market equilibrium, the price of a good equals $40 and the quantity equals 10 units. At this equilibrium, the price elasticity of supply is 2.0. Assume that the supply curve is linear.(a)Use the price elasticity and market equilibrium to find the supply curve.(b)Calculate the producer surplus in the market.(c)Imagine that a policy results in the price falling from $40 to $30. By how much does producer surplus fall?(d)What fraction...

In the market for Iphones the equilibrium price for Iphones is $400, and the quantity of...

In the market for Iphones the equilibrium price for Iphones is $400, and the quantity of Iphones sold is 20,000. (f) The Processor used to make Iphones becomes considerably cheaper and innovation raises the incomes of the population. Show the relevant shifts in your diagram (g) Suppose the government implements a price ceiling of $300. What happens to the market? (h) Suppose the government implements a price ceiling of $500. What happens to the market? (i) Suppose the government implements...

O1. What will happen to the market equilibrium price and quantity for the following situation? Explain...

O1. What will happen to the market equilibrium price and quantity for the following situation? Explain your answer using the graphs. The effect of a decrease in incomes on the market for secondhand vehicles The effect of a governmental subsidy on the market for AIDS research The effect of a decline in the price of irrigation equipment on the market for corn The effect of a decline in the price of personal computers on the market for software The effect...

a) Discuss the effects on the equilibrium price and quantity in the software market, when the...

a) Discuss the effects on the equilibrium price and quantity in the software market, when the price of computer hardware falls. (Please write down the discussion and also show the effects in diagrams.) b) Discuss the effects on the equilibrium price and quantity in the hardware market, when the price of computer software rises. (Please write down the discussion and also show the effects in diagrams.)

Consider the following situations where the market price is not equal to the equilibrium price: Suppose...

Consider the following situations where the market price is not equal to the equilibrium price: Suppose the price of the good is set at $3. Calculate the size of the surplus or shortage. Suppose that the price of the good is set at $7. Calculate the size of the surplus or shortage.

Consider the market for trinkets, where the demand and supply aregiven by the formulas:Demand :Quantity=100−PriceSupply :Quantity=−20+2∙Price...

Consider the market for trinkets, where the demand and supply aregiven by the formulas:Demand :Quantity=100−PriceSupply :Quantity=−20+2∙Price (a) (10 points) Draw the demand and supply curves, and find the equilibriumprice and equilibrium quantity. (b) (10 points) Imagine that the government introduces a price cap of $30.Compare the consumer surplus before and after the cap is introduced.Are consumers better off or worse off? (c) (10 points) Imagine that now the price cap is reduced to $20. Comparethe consumer surplus after the new...

Price Market Quantity Demanded Social Quantity Demanded ($) (units per month) (units per month) 20 10...

Price Market Quantity Demanded Social Quantity Demanded ($) (units per month) (units per month) 20 10 20 18 20 30 16 30 40 14 40 50 12 50 60 10 60 70 b. Does this product have external benefits or external costs? External benefits c. How large ($) is that externality? ? per unit

10. What will happen to the equilibrium price and equilibrium quantity for e-cigarettes if new studies...

10. What will happen to the equilibrium price and equilibrium quantity for e-cigarettes if new studies show that e-cigarettes cause lung cancer (all else being equal)? Equilibrium price will increase, and equilibrium quantity will increase Equilibrium price will increase, and equilibrium quantity will decrease Equilibrium price will decrease, and equilibrium quantity will increase Equilibrium price will decrease, and equilibrium quantity will decrease 11. What will happen to the equilibrium price and equilibrium quantity for a normal good...

The equilibrium price in this market is _ per shirt, and the equilibrium quantity is _ shirts bought and sold per month.

The equilibrium price in this market is _______ per shirt, and the equilibrium quantity is _______ shirts bought and sold per month. Complete the following table by indicating at each price whether there is a shortage or surplus in the market, the amount of that shortage or surplus, and whether this places upward or downward pressure on prices.

Subjects