Suppose the demand equation for bicycles is P = 1900 – 20QD. Calculate the elasticity of...

Suppose the demand equation for bicycles is P = 1900 – 20QD. Calculate the elasticity of demand between the quantity demanded of 40 and 50

Expert Solution

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.

Rahul Sunny answered 8 months ago

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