Answer to Question #220463 in Microeconomics for Nitin Bhawani

Question

Q3:- given by the equations

                             (1)         Qd = 4 - P

                             (2)         Qs = -2+P           

a)    What is the price elasticity of the demand curve at the point of equilibrium?

b)    What is the price elasticity of the supply curve at the point of equilibrium?

Answer 1

• Price elasticity refers to how responsive a good's quantity requested or supplied is to price changes. It's calculated by dividing the percentage change in quantity demanded by the percentage change in price.

• Elasticity can be classified as elastic (or extremely responsive), inelastic (not very responsive), or inelastic (not very responsive).

• Elastic demand or supply curves show that the amount wanted or supplied responds to price changes in a way that is not proportional to the change in price.

• A demand or supply curve that is inelastic is one in which a given percentage change in price results in a smaller percentage change in quantity desired or supplied.

• Unitary elasticity states that a change in price equals a change in quantity sought or supplied by the same percentage.