Author Question: Calculate the elasticity of demand when an increase in supply causes the equilibrium price and ... (Read 62 times)

Alygatorr01285 · **on:** Jun 30, 2018

Calculate the elasticity of demand when an increase in supply causes the equilibrium price and quantity to change from 9 and 2,000 to 7 and 3,000, respectively.

Question 2

Which of the following is true about the equation of exchange?
a. The equation of exchange can be presented as: M V = P Q.
b. Velocity represents the average number of times that a dollar is used in purchasing final goods or services in a one-year period.
c. If M increases, and V remains constant, then P must rise and/or Q must rise.
d. All of the above are true about the equation of exchange.

durant1234 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Elasticity of demand = Percentage change in quantity demanded/Percentage change in price. Using the average quantities and average prices to calculate elasticity, we obtain an elasticity of 5/3, or 1.66.

Answer to Question 2

d