Consider an economy with the following demand equation:

and supply equation:

- The first thing you need to do is calculate the equilibrium price and quantity. To solve for equilibrium price and quantity you need to see such that:

Now to solve for equilibrium quantity you just substitute the price back into either equation, since in equilibrium supply equals demand. This implies that

2) Calculate the point elasticity of demand. To do this we use the following formula

The first part is just the slope of the demand function which means

And then we use the equilibrium value of quantity and demand for our values of P and Q. Thus our point estimate is as follows: