Question

Suppose the market demand curve for a good is represented by the linear equation Q = 50 - 0.25P. If the market price were to increase from P = 20 to P = 40, then holding all other factors constant, what would be the change in quantity demanded?

1) 10 units
2) 15 units
3) 20 units
4) 25 units

Answer 1

The change in quantity demanded, as calculated from the demand equation Q = 50 - 0.25P, when the market price increases from P = 20 to P = 40, results in a decrease of 5 units. However, this answer is not listed in the provided options, suggesting there may be an error in the question or options.

Step-by-step explanation:

To determine the change in quantity demanded when the market price increases from P = 20 to P = 40, we simply substitute these values into the demand equation Q = 50 - 0.25P and calculate the quantity for each price.

When P = 20:
Q = 50 - 0.25(20)
Q = 50 - 5
Q = 45

When P = 40:
Q = 50 - 0.25(40)
Q = 50 - 10
Q = 40

Now we calculate the change in quantity demanded:
Change in Q = Q (at P=40) - Q (at P=20)
Change in Q = 40 - 45
Change in Q = -5

The change in quantity demanded is 5 units; this is a decrease, as indicated by the negative sign. However, since the options provided do not include a change of -5 units, there might be a misunderstanding. Please check the question or answer choices again.