Answer to Question #113251 in Macroeconomics for Usama

Question

How we can solve supply and demand equation for finding elasticity of demand and supply at equilibrium position

Answer 1

We can write elasticity formula like this:

$E=\frac{\Delta Q}{\Delta P}\times\frac{P}{Q}.$

Let's write demand formula:

Qd= aP+c.

Thus $\frac{\Delta Q}{\Delta P}= a$ , bacease "a" shows the rise in quantity demanded if the price changes by 1.

Let (Q', P') be equilibrium point. Thus we can calculate elasticity of demand like:

$Ed=a\times \frac{P'}{Q'}$ .

The same is with supply. If supply curve is Qs=bP+d, than the suplly elasticity will be:

$Es=b\times\frac{P'}{Q'}.$