The market equilibrium price of a good is $50 and the quantity is 80,000 units.

Question

The market equilibrium price of a good is $50 and the quantity is 80,000 units.

The original equilibrium price of $50 and quantity of 80,000 units. In this case, assume that the price increases to $56 and the quantity falls to

78,000.

Calculate the price elasticity of demand over the price range between $50 and $56.

What part of the price increase is paid by the consumers?

What part is paid by the producers?

Does this make sense given the price elasticity of demand?

Calculate the tax revenues the government would collect

Explanation / Answer

Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price

= ((78000-80000)/80000)/((56-50)/50) = -.208

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