Consider the supply curve $Q ^ { s } = 2 P$ and the demand curve $Q ^ { d } = 90 - P$. Which expression best shows how you would calculate the elasticity of demand when $P$ increases by 1 along the demand curve from its equilibrium value?
A) $[ ( 59 - 60 ) / ( 31 - 30 ) ] \times ( 30 / 60 )$
B) $[ ( 56 - 60 ) / ( 31 - 30 ) ] \times ( 30 / 60 )$
C) $[ ( 59 - 61 ) / ( 31 - 30 ) ] \times ( 30 / 60 )$
D) $[ ( 59 - 62 ) / ( 32 - 30 ) ] \times ( 30 / 60 )$

Question

Quizplus · Accepted Answer

To find the equilibrium, set $Q^s = Q^d$: $2P = 90 - P$, solving gives $P = 30$, $Q = 60$. The elasticity of demand formula is $\frac{\Delta Q/Q}{\Delta P/P}$. When $P$ increases by 1, $P = 31$, $Q^d = 90 - 31 = 59$. Thus, $\frac{(59 - 60) / (31 - 30)} \times (30 / 60)$ correctly calculates the elasticity at this point.

Consider the Supply Curve Qs=2PQ ^ { s } = 2 PQs=2P

Consider the Supply Curve $Q ^ { s } = 2 P$