In: Economics
Suppose the demand equation for bicycles is P = 1900 – 20QD. Calculate the elasticity of demand between the quantity demanded of 40 and 50
P = 1900 - 20QD
When, QD = 40, P = 1900 - 20(40) = $1,100
When, QD = 50, P = 1900 - 20(50) = $900
So, P1 = 1,100 Q1 = 40
P2 = 900 Q2 = 50
Price elasticity of demand = (Q2 - Q1) / (P2 - P1) * (P1 + P2) / (Q1 + Q2)
= (50 - 40) / (900 - 1,100) * (1,100 + 900) / (40 + 50)
= (10 / -200) * (2,000 / 90)
= 20,000 / -18,000
= -1.11
The absolute value of Price elasticity of demand is 1.11.