Hello douger!
You can find the graph of the supply and demand curves at the
following address:
http://www.angelfire.com/alt/elmarto/
In order to find the equilibrium price and quantity, we must solve the
following system of 2 equations (the supply and demand equations) with
2 unknowns (price and quantity). The system would be:
Q= 2000-.20*P (demand)
Q= -500+2.2*P (supply)
It can be solved using standard mathematical methods. One way to do it
is that, given 2000-.20*P = Q and also -500+2.2*P = Q, then
2000-.20*P = -500+2.2*P
Solving for P gives:
2.4*P = 2500
P = 2500/2.4
P = 1041.66
That's the equilibrium price. Now, we can plug this price in either
equation to get the equilibrium quantity. For example, using the
demand equation:
Q = 2000 - .2*(1041.66)
Q = 1791.66
So, equilibrium in the small engines market is achieved when the price
is $1041.66, and the quantity is 1791.66 units.
The formula to calculate the price elasticity of demand is:
E = (dQ/dP)*(P/Q)
where dQ/dP is the derivative of the quantity demanded with respect to
the price. In this case, (dQ/dP) = -.2, therefore, the price
elasticity of demand is -.2*(P/Q). Evaluating this at the equilibrium
price and quantity (that is, setting P=1041.66 and Q=1791.66) gives
that the elasticity is -0.11.
Check the following page for more information on elasticity and how it
is calculated.
Elasticity Tutorial
http://www.thecoo.edu/academic/business/economics/Eco212/Summer/ElasticityTutorial.html
Google search terms used:
elasticity
I hope my answer was clear enough. If you have any doubts regarding my
answer, please request a clarification before rating it. Otherwise, I
await your final comments and rating.
Best wishes!
elmarto |
