In New York, the demand for umbrellas is Qd = 100 - P - 3T, and the supply of um

Question

In New York, the demand for umbrellas is Qd = 100 - P - 3T, and the supply of umbrellas is Qs = -40 + P + 5T + 2R, where P is the price of an umbrella, T is the toll on the bridges and tunnels into the city, and R is the rental rate of retail space.

a. What is the equilibrium price and quantity in this market if T = 5 and R = 10?

b. What is the elasticity of demand at equilibrium if T = 5 and R = 10?

Hint: The answer is pretty obvious, so most of the points will come from the why part of the answer

Explanation / Answer

Equilibrium at Qd=Qs

100 - P - 3*5 = -40 + P + 5*5 + 2*10

100 - P - 15 = -40 + P + 25 + 20

2P = 80

P = 40

Q = 85-40 = 45

Ed = (dQ/dQ)*(P/Q)

=-1*(40/45) = (-)0.88889

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