Path p words o QUESTION 2 Suppose demand is given by Qd 100

Path p words o & QUESTION 2 Suppose demand is given by Qd- 1000-25P and supply is given by Qs- 25P. At t the equilbrium price and quantity, the price elasticity of demand is A)-3 B)-25 C)-1 D)-10 Please write the best answer choice to receive full credit and support your answer with an explanation T TT ? Paragraph ? Arial 3(12pt) ?·-·-·T. ?

Solution

Option C -1

Let us first solve for equilibrium price and quantity-

Qd = Qs
1000 - 25P = 25P
50P= 1000
P* = 20
Q* = 25*20 = 500

Elasticity of demand = dQ/dP * P/Q (and from demand curve dQ/dP = -25)
= -25 * 20/500
= -500/500
= - 1