Microeconmics (ECON 2201) question

[ViviTheMage]

This is for ECON 2201, and this is 15% of this assignment. The other stuff was simple, but this question has baffled me and a lot of other students in class. I went up and asked the teacher about it and he said that you need to 'figure it out'. Now I assume there is an equation for it in my notes, but there is not. I tried combining a few equations with zero luck. So maybe someone can give me a good answer on here , the question is:

If the elasticity of demand is 9 and the elasticity of supply is .02, and Qd = 75, and Qs = 124, how much would price need to fall for the market to reach equilibrium ?

I have a BS answer of : The elasticity of demand would need to fall 8 points, while the elasticity of supply would need to raise .98 points.

 

[TheoPetro]

dang man im a finance major and aced my econ classes and I cant remember ever having a question like this sorry. I would try investopedia.com or google

 

[ViviTheMage]

Originally posted by: TheoPetro
dang man im a finance major and aced my econ classes and I cant remember ever having a question like this sorry. I would try investopedia.com or google

I am not an ECON major or anything like that, but this question seems a bit over our heads...especially since the book has nothing about relating these two things, and the notes I took (very good notes might I add) have nothing about it either.

 

[ViviTheMage]

any ECON people want to chim in?

 

[Dari]

What are your equations for Qs and Qd?

 

[sjwaste]

Originally posted by: ViviTheMage
This is for ECON 2201, and this is 15% of this assignment. The other stuff was simple, but this question has baffled me and a lot of other students in class. I went up and asked the teacher about it and he said that you need to 'figure it out'. Now I assume there is an equation for it in my notes, but there is not. I tried combining a few equations with zero luck. So maybe someone can give me a good answer on here , the question is:

If the elasticity of demand is 9 and the elasticity of supply is .02, and Qd = 75, and Qs = 124, how much would price need to fall for the market to reach equilibrium ?

I have a BS answer of : The elasticity of demand would need to fall 8 points, while the elasticity of supply would need to raise .98 points.

It looks like with an elasticity and a quantity demanded for each, you can plot each line using a point-slope formula. The Y-axis is price, of which you have no actual values to work with, so abstract it with a variable (p?) and go from there. Remember that you're solving for p.

EDIT: You'll still need to get the slope from the elasticity function. I'm just adding this to not cause confusion, price elasticity and slope are not the same, but the elasticity function involves the slope.

I'm at work and I don't have time to write it out on paper, nor do I think anyone should do the problem for you. I think you can get close w/ what I told you above, though.

 

[ViviTheMage]

Originally posted by: Dari
What are your equations for Qs and Qd?

the only equations i have, are to figure out the elasticities, but they are given...

 

[sjwaste]

Originally posted by: ViviTheMage

Originally posted by: Dari
What are your equations for Qs and Qd?

the only equations i have, are to figure out the elasticities, but they are given...

I wonder if I might be oversimplifying it now, but in any case, maybe this'll get you started.

Treat Es as negligible (.02 is pretty damn inelastic).
Now look at Ed, which is 9, very elastic.

Again, treating Es as negligible, interpret what you know about what price elasticity actually means (the definition) and figure out how much the price has to drop to make Qd = Qs. Since Qs won't change (much) but Qd will based on price, you'll be able to approximate an answer, which might be all your prof is looking for.

 

[ViviTheMage]

75 / 9 = .12 * 100 = 12% , giving me that the price will have to go up in 12%. Something about that feels so wrong, haha.

 

[darkxshade]

Originally posted by: ViviTheMage

If the elasticity of demand is 9 and the elasticity of supply is .02, and Qd = 75, and Qs = 124, how much would price need to fall for the market to reach equilibrium ?

Answer:

Depends on how much the subprime sector fucked up the economy.



You'll get a Nobel for it.

 

[ViviTheMage]

Originally posted by: darkxshade

Originally posted by: ViviTheMage

If the elasticity of demand is 9 and the elasticity of supply is .02, and Qd = 75, and Qs = 124, how much would price need to fall for the market to reach equilibrium ?

Answer:

Depends on how much the subprime sector fucked up the economy.



You'll get a Nobel for it.

hahaha, may have more reason then my answer

 

[Itchrelief]

Originally posted by: ViviTheMage

Originally posted by: Dari
What are your equations for Qs and Qd?

the only equations i have, are to figure out the elasticities, but they are given...

I know next to nothing about economics, but I need posts, so here goes. Post count +1!

If your equations tell you how to figure out elasiticity from the slope of a line (or two pairs of price & quantity data points), then you should be able to work backwards and use the elasiticity to find the equation of two lines and see where they intersect to find the equilibrium point.
Use the supplied Qs and Qd to find the original price.

Find the difference between these two prices for the answer.

Completely disregard this if you are doing some high-level econ that models price and supply curves with non-linear functions.

edit: I guess the equations should call for one pair of data points to find an elasticity, not two. Maybe I was thinking two pairs of points to find both elasiticities.