Question

Find the price for good Z and the quantity supply for good X (show all the calculations) if: (i) The elasticity of supply is equal to 1 and the price increases from $40 to $50.

(ii) If the elasticity of demand is 0.5 and the quantity demanded decreases from 95.000 to 85.000.

(iii) Draw the graph and indicate the equilibrium price and quantity .

Price per Tonne ($) Quantity Demanded Quantity Supplied

40 150 80

50 120 X

60 110 110

80 95 115

Z 85 120

110 80 140

Answer 1

(i)

$Es=\frac{\Delta Q}{\Delta P}$

Es=1

$\Delta P=\frac{50}{40}=1.25$

$1=\frac{\Delta Q}{1.25}$

$1.25=\frac{Q2}{80}$

Q2=100

(ii)

$0.5=\frac{0.89}{\Delta P}$

$\Delta P=1.78$

$1.78=\frac{P2}{80}$

P2=142.4

(iii)

P=60, Q=110