Question

Qd = 25000 – 2P

Qs =10000 + 1P

Calculate price elasticity of demand using point elasticity method when the construction industry is in equilibrium and interpret the result? 

Answer 1

$Qd = Qs$

$25000-2p= 10000+1p$

$25000-10000=P+2P$

$15000=3P$  

$P= 5000$

$Qd = 25000-2p$  

$= 25000-2(5000)$

$=25000-10000$

$Q=15000$

Point elasticity of demand $= (\frac{∆Qd}{∆P})\times(\frac{P}{Q})$

$= -2\times(\frac{5000}{15000})$

$=\frac{-2}{3}$

$=0.67<1$

The elasticity of demand at equilibrium is inelastic. That is , when price increases, the quantity is not much affected at equilibrium point.