Question

Suppose that at a price of $4.50, the quantity of output demanded is 15, and at a price of $7.00, the quantity of output demanded is 10. What is the elasticity of demand? (Ignore the negative sign.)

please give the answer only.

Answer 1

Price elasticity of demand (using original values): 0.60

Price elasticity of demand (using mid ppoint method): 0.92

Explanation:

Price elasticity of demand as per Mid point method:

Original price: $ 4.50

REvised price: $7.00

Change in price: $2.50

Average price (4.50+7.00)/2 = 5.75

% change in price = Change in price/ Average price = $2.50 /5.75 *100 = 43.47%

Original demand: 15

Revised demand: 10

Change in demand: 5

Average demand (10+15)/2 = 12.5

% change in demand = Change in demand/ Average demand = 5 /12.5 % = 40%

Price ealsticity of demand: % change in demand/ % chaneg in price = 40% /43.47% =0.92

Note: As method not mentioned, price elasticity using original price and demand is also computed as under:

Original price: $ 4.50

REvised price: $7.00

Change in price: $2.50

% change in price = Change in price/ Original price = $2.50 / 4.50 *100 = 55.56%

Original demand: 15

Revised demand: 10

Change in demand: 5

% change in demand = Change in demand/ original demand = 5 /15 % = 33.33%

Price ealsticity of demand: % change in demand/ % change in price = 33.33% /55.56% = 0.60