Question

Suppose that, at the market clearing price of natural gas, the price elasticity of demand is -1.2 and the price elasticity of supply is 0.6. If, initially, the price was 10 percent below the market clearing price, then at this initial price there would be:
a. A shortage equal to 1.8 percent of the market clearing quantity.
b. A shortage equal to 0.6 percent of the market clearing quantity.
c. A shortage equal to 18 percent of the market clearing quantity.
d. A shortage equal to 6 percent of the market clearing quantity.
e. (a) or (c) depending on the units of measurement being used.

Answer 1

c. A shortage equal to 18 percent of the market clearing quantity.