Question

Solve for price elasticity of demand (E_d) and price elasticity of supply (E_s) between each pair of prices ($8 and $7, and $7 and $6) and determine the total revenue that could be earned at each price. Show your work!

Supply and Demand

Es	Quantity Supplied	Product Price	Quantity Demanded	Total Revenue	Ed
	17,000	$8	7,000
	13,000	$7	22,000
	11,000	$6	25,000

Answer 1

Working notes:

(a) Ed = (Change in Quantity demanded (Qd) / Average Qd) / (Change in Price (P) / Average P)

(b) Es = (Change in Quantity supplied (Qs) / Average Qs) / (Change in Price (P) / Average P)

(c) Total revenue (TR) = P x Min(Qd, Qs) [Since market quantity will be lower of Qd and Qs]

Therefore:

Price (P)	Change in P	Average P	Qs	Change in Qs	Average Qs	Es
	(1)	(2)		(3)	(4)	[(3)/(4)] / [(1)/(2)]
8			17,000
7	-1	7.5	13,000	-4,000	15,000	2.00
6	-1	6.5	11,000	-2,000	12,000	1.08
Price (P)	Change in P	Average P	Qd	Change in Qd	Average Qd	Ed
	(1)	(2)		(3)	(4)	[(3)/(4)] / [(1)/(2)]
8			7,000
7	-1	7.5	22,000	15,000	14,500	-7.76
6	-1	6.5	25,000	3,000	23,500	-0.83

Consolidated:

Es	Price (P)	Qs	Qd	Min(Qd, Qs)	TR	Ed
	(1)	(2)	(3)	(4)=Min[(2), (3)]	(1)x(4)
	8	17,000	7,000	7,000	56,000
2.00	7	13,000	22,000	13,000	91,000	-7.76
1.08	6	11,000	25,000	11,000	66,000	-0.83