Answer to Question #189402 in Microeconomics for Salman Khan

Question

Qd= 25000-2p

Qs= 10000-1p

Calculate the market equlibrium level of price and quantity for housing unit?

Calculate price elasticity of demand using point elasticity method when industry is in equlibrium?

Answer 1

An equilibrium is that state of balance

$Qd=25000-2P$

$Qs=10000+1P$

Equilibrium is found out by equating Demand = Supply.

So, 

$25000-2P=10000+1P$

$25000+10000=1P+2P$

$35000=3P$

$P=\frac{35000}{3}$

$P=11,666.67$

$Qd=25000-2(11,666.67)$

$Qd=25000-23333.33$

Equilibrium Price = 11666.67

Equilibrium Quantity = 1666.67

Elasticity is the change in quantity due to change in price. 

$ed=\frac{\delta Q}{\delta P}\times \frac{P}{Q}$

$ed=\frac{\delta (25000-2P)}{\delta P}\times \frac{11666.67}{1666.67}$

$ed=-2\times 6.99988$

$ed=-13.99$

Price Elasticity of Demand using point elasticity method is 13.99. That is demand is highly elastic.