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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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I just went to check my answers for question 4 and 5 on the homework. These questions are based off of the other questions 1-3 that I have already answered. I have answer 4 and 5 but not sure if they are right. I have attached all questions.

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Step 1

Answer:

(4).

The formula of elasticity of demand is given below:

$E_{D} = \frac{d Q}{d P_{r}} \times \frac{P r i c e}{Q u a n t i t y}$

Since the elasticity at equilibrium price is asked,

Equilibrium Price = 9.33

Equilibrium Quantity = 6.67

$\frac{d Q}{d P_{r}} (s l o p e o f t h e r e t a i l d e m a n d f u n c t i o n) = - 1 E_{D} = - 1 \times \frac{9.33}{6.67} E_{D} = - 1.398 o r - 1.4$

So, the elasticity of retail demand at the equilibrium is -1.4. The demand is elastic because the elasticity is greater than one in absolute terms (1.4>1).

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