TutorOn by Sanath Withanage

Question:

$Q_D = 160 – 4P$ and $Q_S = -20 + 2P$. The price elasticity of demand at the market equilibrium is
(1) -2.4
(2) -2.6
(3) -2.8
(4) -3.0
(5) -5.3

Correct Answer:

(4)

Answer Explanation:

First, find equilibrium: $160 – 4P = -20 + 2P rightarrow 6P = 180 rightarrow P = 30$. Find Quantity: $Q_D = 160 – 4(30) = 40$. Point Elasticity formula: $PED = (frac{dQ}{dP}) times (frac{P}{Q})$. The slope of the demand curve ($frac{dQ}{dP}$) is -4. Therefore, $PED = -4 times (frac{30}{40}) = -4 times 0.75 = -3.0$.

Topic: Elasticity Year: 2018