Economics and Statistics

If you know that the market demand for good X corresponds to the following equation: and the supply curve can be model by the equation: Calculate the price elasticity for each curve at the equilibrium point. Furthermore explain which curve is relatively more elastic. The first step consists of solving for the equilibrium price and quantity: Remember the formula for the price elasticity is Therefore pick the two closest points and calculate the price elasticity, in this case let's pick a point that is one quantity less than the equilibrium point on both curves. Since we are dealing with linear equations we can use another formula which is specific for these types of curves and is more precise than the method we used so far. The formula is the fraction of the price over the quantity multiplied by the inverse of the slope. Since Ed>Es, the demand curve at the equilibrium point is relatively more elastic than the supply curve...

After exploring the concept of a price ceiling in a previous post. It is time define the term "price floor". A price floor can be thought as the opposite definition of a price ceiling, where the latter can be described as setting a maximum price that must be smaller than the current equilibrium price. The former is a minimum price that must be greater than the equilibrium price. If a government finds the that the market equilibrium price for a good to be too low, it may impose a minimum price that is greater than the current market price. The quantity demanded is lower than the quantity supplied. The market produces more than the consumers are willing to buy at that price. This results in a surplus which can be represented by the distance between the quantity consumed and the quantity supplied at the new imposed price in the market. Real life examples of price floors can be found in the agriculture and energy industries, or in the labor market (minimum wage). Recent...