In: Economics
At P = $8, Qd = 300 and Qs = 750
At P = $10, Qd = 100 and Qs = 1000
a)
(Ps1, Qs1) = (8, 750)
(Ps2, Qs2) = (10, 1000)
The elasticity of supply = [(Qs2 - Qs1)/(Ps2-Ps1)]*(Ps1/Qs1)
=[(1000-750)/(10-8)]*(8/750)
=1.33
Hence, the elasticity of supply = 1.33
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b)
(Pd1, Qd1) = (8,300)
(Pd2, Qd2) = (10, 100)
The elasticity of demand = [(Qd2 - Qd1)/(Pd2-Pd1)]*(Pd1/Qd1)
=[(100-300)/(10-8)]*(8/300)
= - 2.67
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c)
If an increase in price causes a decrease in total revenue and vice-versa, then a demand can be said to be elastic.
If an increase in price causes an increase in total revenue and vice-versa, then a demand can be said to be inelastic.
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d)
(Ps1, Qs1) = (8, 750)
(Ps2, Qs2) = (10, 1000)
The elasticity of supply = 1.33 > 1 , implying supply is elastic.
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e)
(Pd1, Qd1) = (8,300), TR1 = 8*300 = 2400
(Pd2, Qd2) = (10, 100), TR2 = 10*1000 = 1000
The elasticity of demand = [(Qd2 - Qd1)/(Pd2-Pd1)]*(Pd1/Qd1)
=[(100-300)/(10-8)]*(8/300)
= - 2.67
Thus, in absolute terms, price elasticity of demand = 2.67 > 1 , hence, demand is elastic
Also, an increase in price from $8 to $10 causes a decrease in total revenue from $2400 to $1000, hence, the demand can be said to be elastic.