Question

Question 1:

A firm faces the following demand curve

Q_d(P) = 1274 – 15P

Let P1=$64 and P2=$66

Calculate the percentage change in PRICE between P1 and P2. Do not round.

Question 2:

Continuing from the following question

Calculate the percent change in QUANTITY between P1 and P2 Do not round.

Question 3:

Continuing from the following question

Calculate the price elasticity of demand between P1 and P2 Do not round.

Question 4:

Is the price elasticity of demand elastic, inelastic, or unit elastic between P1 and P2

Answer 1

Qd = 1274 - 15P

P1 = $64

Qd1 = 1274 - 15P1 = 1274 - (15*64) = 1274 - 960 = 314

P2 = $66

Qd2 = 1274 - 15P2 = 1274 - (15*66) = 1274 - 990 = 284

Question 1

Calculate the percentage change in price between P1 and P2 -

% change in price = [(P2 - P1)/P1] * 100 = [(66 - 64)/64] * 100 = 3.125%

The percentage change in price between P1 and P2 is 3.125 percent.

Question 2

Calculate the percentage change in quantity demanded between P1 and P2 -

% change in quantity demanded = [(Q2 - Q1)/Q1] * 100 = [(284 - 314)/314] * 100 = -9.554%

The percentage change in quantity demanded between P1 and P2 is -9.554 percent.

Question 3

Calculate the price elasticity of demand -

Ep = % change in quantity demanded/% change in price = -9.554/3.125 = -3.05

The price elasticity of demand between P1 and P2 is -3.05

Question 4

When the value of the price elasticity of demand is greater than 1 then demand is said to be elastic.

The price elasticity of demand between P1 and P2 is greater than 1.

So, the price elasticity of demand is elastic between P1 and P2.