Question

2. Calculating the price elasticity of demand: A step-by-stepguide

Suppose that during the past year, the price of a laptop computer fell from $2,350 to $1,930. During the same time period, consumer sales increased from 436,000 to 537,000 laptops.

Calculate the elasticity of demand between these two price-quantity combinations by using the following steps. After each step, complete the relevant part of the table with the appropriate answers. (Note: For decreases in price or quantity, enter values in the Change column with a minus sign, )

Answer 1

	Original	New	Average	Change	Percentage Change
Quantity	4,36,000	5,37,000	4,86,500	1,01,000	20.76
Price	2,350	1,930	2,140	-420	-19.63

Price elasticity of demand = % Change in quantity / % Change in price, where

% Change = (Change / Average value) x 100

Price elasticity of demand = 20.76% / (-19.63%) = -1.06