A company is interested in examining elasticity of a new product. Economists at that company estimate...
A company is interested in examining elasticity of a new product. Economists at that company estimate that short run and long run demands are QD=400-4P and QD= 200-1P respectively. At price of P=75
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What is the price elasticity of demand in the short run?
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What is the price elasticity of demand in the long run?
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Given your answers in 1) and 2), is this product a durable or non-durable good?
Homework Answers
When P=75
QD in the short run = 400-4*75 = 100
QD in the long run = 200-1*75 = 125
Elasticity in the short run = -4*75/100 = -3
Elasticity in the long run = -1*75/125 = -0.6
The product is a durable good as the price increase will cause the demand to fall in the long run
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