Question

If the price elasticity of demand for used cars priced between $3,000 and $5,000 is-1.2 (using the mid- point method), what will be the percent change in quantity demanded when the price of a used car falls from $5,000 to $3,000? Instructions: Round your answer to the nearest whole number. 60.00 percent

Answer 1

p_2 = 3000 $ p_1 = 5000 $ cd = % delta Q/% delta p = delta Q/Q/delta p/p cd = % delta Q/p_2 minus p_1/(p_1 + p_2)/2 % delta Q = (minus 1.2) times p_2 minus p_1/(p_1 + p_2)/2 (minus 1.2) times (3000 minus 5000)/(3000 + 5000)/2 = (minus 1.2) times (minus 2000)/(8000)/2 = (minus 1.2) times (minus 2000)/4000 = 1.2/2 = + 0.6 = 60 %