Suppose that the percentage change in demand is 20%, the price elasticity of demand is 3, and the price elasticity of supply is 2. What is the percentage change in the equilibrium price?
A) 4%
B) 5%
C) 15%
D) 20%

Question

Quizplus · Accepted Answer

The correct answer is A because the percentage change in the equilibrium price is equal to the percentage change in demand divided by the sum of the absolute values of the price elasticity of demand and the price elasticity of supply. In this case, the percentage change in demand is 20%, the price elasticity of demand is 3, and the price elasticity of supply is 2. Therefore, the percentage change in the equilibrium price is 20% / (3 + 2) = 4%.

Suppose That the Percentage Change in Demand Is 20%, the Price