Question

Suppose the market for grass seed can be expressed as follows.

Demand: QD = 100 - 2p

Supply: QS = 3p

At the market equilibrium, calculate the price elasticities of supply and demand? What would happen with the quantity demanded if price reaches to 30? Price reaches to 50?

Answer 1

$$100-2p=3p$$

$$p=20$$

$$Q=60$$

$$E_D=-2\times\frac{20}{60}=-0.67$$

$$E_S=3\times \frac {20}{60}=1$$

If p=30

$$Q=3\times30-(100-2\times30)=90-40=50$$

There will be a shortage of 50 items

If p=50

$$Q=3\times50-(100-20\times 50)=150$$

There will be an excess of 150 pcs.