Question

Suppose that the percentage change in demand is 10%, the price elasticity of demand is 1, and the price elasticity of supply is 2. What is the percentage change in the equilibrium price?

Answer 1

Answer: 3.3%

Step-by-step explanation:

Formula:

The percentage change in equilibrium price = (percentage change in demand) / (Ed + Es) * 100%

The given parameters are:

Percentage change in demand = 10% = 0.1

Ed (Price elasticity in demand) = 1

Es (Price elasticity in supply) = 2

Therefore, substituting the given parameters into the formula above,

Percentage change in equilibrium price = 0.1/(1+2) * 100%

= 0.1/3 * 100%

= 0.03333 * 100%

= 3.33%

This means that the percentage change in equilibrium price will be 3.33% when the change in demand is 10%.