Answer to Question #133017 in Macroeconomics for Zemba Siamuleya

Question

The respective elasticities of demand and supply for a product are -0.55 and 1. Further, it is observed that the price of this commodity is K80 whilst the prevailing quantity in the market is 950.
a) By adopting a demand and supply concept of
Qd = a + bP
Qs = c + dP

Use the information provided to estimate the values of a,b,c and d. [5 Marks]
b) Using the estimated parameters, find the equilibrium price and quantity. [5 Marks]
c) At the equilibrium point, which is more elastic, demand or supply? [5 Marks]

Answer 1

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