2 Consider a competitive industry with a large number of fir

2. Consider a competitive industry with a large number of firms. Suppose that the supply curve is given by. S(p) = 2p and the demand curve is given by D(p)-20-2p. (c) Find the exact percentage change in quantity demanded when the price is in- creased by 1% from 2.

Solution

The demand function is given by

D(p) = 20-2p

for initital price of 2, the quantity demanded equals

D(2) = 20-2*2 = 16

if price is increased by 1%, the new price will be = 2+1/100*2 = 2.02

New quantity demanded will be D(2.02) = 20-2*2.02 = 15.96