Question

In: Economics

Suppose that at a price of $4.60, the quantity of output demanded is 17, and at...

Suppose that at a price of $4.60, the quantity of output demanded is 17, and at a price of $5.40, the quantity of output demanded is 9. What is the elasticity of demand? (Ignore the negative sign.)

Expert Solution

Original price: $ 4.60

Revised price: $ 5.40

Change in price: $5.40- $4.60 = $ 0.80

% change in price: Change in price/ Original price = 0.80 / 4.60 *100 = 17.39%

Original demand: 17

Revised demand: 9

Change in demand= 17-9 = 8

% change in demand: Change in demand/ Original demand = 8/ 17 *100 = 47.06%

Price elasticity of demand = % Change in demand / % change in price = 47.06% / 17.39% = 2.71

Note: Tthe method of computing the elasticity is not mentioned, the price elasticity as per mid point method is also computed as follows:

Original price: $ 4.60

Revised price: $ 5.40

Average price (4.60+5.54) /2 = $ 5

Change in price: $5.40- $4.60 = $ 0.80

% change in price: Change in price/ Average price = 0.80 / 5.00 *100 = 16%

Original demand: 17

Revised demand: 9

Average demand (17+9)/2 = 13

Change in demand= 17-9 = 8

% change in demand: Change in demand/ Average demand = 8/ 13 *100 = 61.54%

Price elasticity of demand = % Change in demand / % change in price = 61.54% / 16% = 3.85

Rahul Sunny answered 2 years ago

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