Question

Chapter 5 (#4)

Consider the following demand schedule:

Price	Quantity Demanded	Elasticity Coefficient
$25	20	-3
20	40	-1.4
15	60	-0.714
10	80	-0.33
5	100

What is the price elasticity of demand between? See attached

P = $25 and P = $20?

P= $20 and P = $15?

P = $15 and P = $10?

P = $10 and P = $5?

Answer 1

Solution-

Price elasticity of demand between P = $25 and P = $20.

Ed = % change in quantity demanded / % change in Price.

% change in Quantity = 20 - 40 / 20 x 100 = 20 / 20 x 100 = 1 x 100 = 100%

% change in Price = 25 - 20 / 25 x 100 = 5 / 25 x 100 = 0.2 x 100 = 20%

Ed = 100 / 20 = 5

Elasticity of demand is Elastic demand because, coefficient is greater than 1.

Price elasticity of demand between P= $20 and P = $15

Ed = % change in quantity demanded / % change in Price.

% change in Quantity = 40 - 60 / 40 x 100 = 20 / 40 x 100 = 0.5 x 100 = 50%

% change in Price = 20 - 15 / 20 x 100 = 5 / 20 x 100 = 0.25 x 100 = 25%

Ed = 50 / 25 = 2

Elasticity of demand is Elastic demand because, coefficient is greater than 1.

Price elasticity of demand between P = $15 and P = $10

Ed = % change in quantity demanded / % change in Price.

% change in Quantity = 60 - 80 / 60 x 100 = 20 / 60 x 100 = 0.33 x 100 = 33%

% change in Price = 15 - 10 / 15 x 100 = 5 / 15 x 100 = 0.33 x 100 = 33%

Ed = 33 / 33 = 1

Elasticity of demand is Unit Elastic demand because, coefficient is equal to 1.

Price elasticity of demand between P = $10 and P = $5

Ed = % change in quantity demanded / % change in Price.

% change in Quantity = 80 - 100 / 80 x 100 = 20 / 80 x 100 = 0.25 x 100 = 25%

% change in Price = 10 - 5 / 10 x 100 = 5 / 10 x 100 = 0.5 x 100 = 50%

Ed = 25 / 50 = 0.5

Elasticity of demand is Inelastic demand because, coefficient is less than 1.