Answer to Question #185327 in Macroeconomics for HASAN ALI KHAN

Question

it works out the demand function for the book as:                                              

Q = 5000 – 5P

Find out

i)                   Demand curve

ii)                 Number of book sold at P = Rs. 25

iii)               Price for selling 2500 copies

iv)               Price for zero sales

v)                 Elasticity for fall in price from Rs. 25 to Rs. 20.

Answer 1

i)

In the demand function, Price (P) is expressed in terms of Quantity (Q).

Since $Q = 5000 - 5P$

$5P = 5000 - Q$

$P = 1000 - 0.2Q$

$P = 1000 - 0.2Q$   is the demand curve

ii)

$P=1000-0.2Q$

$25=1000-0.Q$

$0.2Q=1000-25$

$0.2Q=975$

$Q=4875$

iii)

Q=2500

$P=1000-0.2Q$

$P=1000-0.2(2500)$

$P=1000-500$

$P=500$

iv)

Q=0

$P=1000-0.2Q$

$1000-0.2(0)$

P=1000

v)

P=25 Q=4875

P=20

$20=1000-0.2Q$

$0.2Q=1000-20$

$0.2Q=980$

$Q=4900$

P25 Q 4875

P20 Q 4900

Price elasticity of demand$=\frac {(Q_2-Q_1)/[(Q_2+Q1)/2]}{(P_2-P_1)/[(P_2+P_1)/2}$

$=\frac{(4900-4845)/[(4900+4875)/2]}{(20-25)/[(20+25)/2]}$

$=\frac{0.0051}{0.22}$

$=0.023$