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.

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 2 years ago

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