Question
In: Economics
When the price is $2, the quantity demanded is 10. When the price rises to $8, the quantity demanded falls to 2.
When the price is $2, the quantity demanded is 10. When the price rises to $8, the quantity demanded falls to 2. What is the value of the elasticity of demand? Is it elastic or inelastic?
Solutions
Expert Solution
* Elasticity is defined as the response of a good for a change in price. If the elasticity value is greater than 1 (absolute term) then it is called as elastic and if it is less than 1 (absolute term) then it is called as inelastic.
* So, it is calculated as percentage in Quantity demanded to percentage change in price.
Ed = ((Q2-Q1)/Q1)/ ((P2-P1)/P1) = ((2-10)/10)/((8-2)/2) = -80%/300% = -0.27
* As the value of the elasticity is less than 1 in terms of absolute value the elasticity of demand is said to be inelastic.
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Table 1
Price
Quantity Demanded
Quantity Supplied
$10
10
60
$8
20
45
$6
30
30
$4
40
15
$2
50
0
1 Refer to Table 1. The
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$2 and 50.
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$6 and 30.
c.
$6 and 60.
d.
$12 and 30.
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price were $8, a
a.
shortage of 20 units would exist and price would tend to
rise.
b.
surplus of...
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1
Price
Quantity Demanded
Quantity Supplied
$10
10
60
$8
20
45
$6
30
30
$4
40
15
$2
50
0
1
Refer to Table 1. The equilibrium price and
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a.
$2 and
50.
b.
$6 and
30.
c.
$6 and
60.
d.
$12 and
30.
2. .
Refer to Table 1. If the price were $8,
a
a.
shortage of 20
units would exist and price would tend to rise.
b.
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