Question

Suppose that the demand curve for compact disks is given by P = 600 – Q and that the supply curve is given by P = 0.5 Q, where Q is the quantity of compact disks and P is their price. What is the price elasticity of demand at the equilibrium price and quantity?
a. –2.00b. –0.02c. –0.50d. –0.05e. –0.20

Answer 1

Answer: -0.5

Explanation:

From the information given,

Demand curve = P = 600 – Q

Supply curve = P = 0.5Q

Equilibrium = Qd = Qs

Therefore, 600 - Q = 0.5Q

600 = Q + 0.5Q

600 = 1.5Q

Q = 600/1.5

Q = 400

Since P = 600 - Q

P = 600 - 400

P = 200

Price elasticity will be:

= (dQ/dP) × (P/Q)

=(-1) × (200/400).

= -1 × 0.5

= -0.5

The price elasticity is -0.5