Question

You have estimated that the price of an ounce of unobtanium is Q(P)=110 – 9/10 × P, where Q is the number of tons demanded. If the current price is $29 per ounce, what is elasticity of demand?

Answer 1

Answer: 0.31

Solution: Given demand function as:

Q= 110-0.9P

and Price,P= $29

So Q= 110- 0.9(29)=83.9

Elasticity of demand (e), will be

e = -(dQ/dP)*(P/Q).......1

dQ/dP= -0.9 , P=29, Q= 83.9

Put the above values in equation 1.

e= - (-0.9)* (29/83.9)

e = 0.9* 0.345

e= 0.31

The price elasticity of demand is less than one that means the demand for good is relatively inelastic.