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Homework Help: Need help with supply and demand equation

  1. Jan 9, 2012 #1
    ityckhjk
     
    Last edited: Jan 9, 2012
  2. jcsd
  3. Jan 9, 2012 #2
    moving to homework help. now please show some work or at least some thoughts on the matter
     
  4. Jan 9, 2012 #3
    i think I solved it I just want to know if it is right


    a. P=120-1.25q, to get the quantity when the price is 80, just represent P with 80 in the equation:
    80=120-1.25q
    80+1.25q=120
    1.25q=120-80
    1.25q=40
    q=40/1.25
    q=32. The quantity demanded when the price is $80.
    b. To get the price elasticity between the price 80 and 60, we must first get the quantity at both prices. We already know that of $80 are 32 units. $60 is
    60=120-1.25q
    60+1.25q=120
    1.25q=120-60
    1.25q=60
    q=60/1.25
    q=48.

    PED= (%change in quantity)/ (% change in price)

    %change in quantity = (chg in qty/ initial qty) * 100
    % change in price = 32-48= -16.
    Initial quantity is 32.
    %change in quantity = (-16/32)*100
    = (-.5)*100
    = -50%= 50%.

    % change in price = (change in price/ initial price)*100
    change in price=80-60=20.
    Initial price= 80
    % change in price= (20/80)*100
    = (.25)*100%
    =25%

    now, the
    Price Elasticity of Demand = 50%/25%
    Price Elasticity of Demand = 2.

    The good is an elastic good.
    c. Equilibrium is where demand is equal to supply.
    120-1.25q=1.75q
    120=1.75q+1.25q
    120=3q
    q=120/3
    q=40. This is the equilibrium quantity.

    For the equilibrium price, substitute for the equilibrium quantity in any of the demand or supply equation. Taking the supply equation,
    P=1.75q
    P=1.75(40)
    P=70 the equilibrium price.
     
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