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13 November, 19:47

The data below represent a demand schedule.

Product price Quantity demanded

40 10

35 15

30 20

25 25

20 30

Determine the price elasticity of demand between each of the following prices:

a. Between P1 = $40 and P2 = $35, Ed =

b. Between P1 = $35 and P2 = $30, Ed =

c. Between P1 = $30 and P2 = $25, Ed =

d. Between P1 = $25 and P2 = $20, Ed =

+1
Answers (1)
  1. 13 November, 23:07
    0
    a. 5 (relatively elastic demand)

    b. 2.33 (relatively elastic demand)

    c. 1.50 (relatively elastic demand)

    d. 1 (unitary elasticity demand)

    Explanation:

    P=price. QD=quantity demand

    a. P1=40 QD1=10

    P2=35 QD2=15

    Price elasticity demand = (%change in QD) : (%change in P)

    % change in QD = (Qd2-Qd1) : Qd1 * 100

    (15-10) : 10 = (5:10) * 100

    =50%

    %change in price = (P2-P1) : P1 * 100

    (35-40) / 40 * 100

    =10%

    Price elasticity of demand for question a. = 50% : 10% = 5

    b. P1=35. QD=15

    P2=30. QD=20

    Price elasticity demand = (%change in QD) : (%change in P)

    % change in QD = (Qd2-Qd1) : Qd1 * 100

    (20-15) : 15 = (5:15) * 100

    =33.33%

    %change in price = (P2-P1) : P1 * 100

    (30-35) / 35 * 100

    =14.29%

    Price elasticity of demand for question b.

    = 33.33% : 14.29%

    =2.33

    c. P1=30. QD=20

    P2=25. QD=25

    Price elasticity demand = (%change in QD) : (%change in P)

    % change in QD = (Qd2-Qd1) : Qd1 * 100

    (25-20) : 20 = (5:20) * 100

    =25%

    %change in price = (P2-P1) : P1 * 100

    (25-30) / 30 * 100

    =16.67%

    Price elasticity of demand for question b.

    = 25% : 16.67%

    =1.50

    d. P1=25. QD=25

    P2=20. QD=30

    Price elasticity demand = (%change in QD) : (%change in P)

    % change in QD = (Qd2-Qd1) : Qd1 * 100

    (30-25) : 25 = (5:25) * 100

    =20%

    %change in price = (P2-P1) : P1 * 100

    (20-25) / 25 * 100

    =20%

    Price elasticity of demand for question b.

    = 20% : 20%

    =1.00

    Note : negative signs are neglected when calculating price elasticity.
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