Question

3. Calculate and categorize the point elasticity for the (inverse) demand curve P = 24 -20 at P=14, P2=12, Pz=10.

Answer 1

Point elasticity = % change in Qd/% change in price

If Ed>1, elastic, less than 1 inelastic and equal to 1 unit elastic

	P	Q= 12-0.5P	% Change in Q	%change in P	Ed = % Change in Qd/% Change in P	Categorize
P0	16	=12-0.5*16 = 4
P1	14	=12-0.5*14 = 5	=(5-4)/4 = 0.25	=(14-16)/16 = -0.125	=0.25/-0.125 = -2	Elastic
P2	12	=12-0.5*12 = 6	=(6-5)/5 = 0.2	=(12-14)/14 = -0.143	=0.2/-0.143 = -1.4	Elastic
P3	10	=12-0.5*10 = 7	=(7-6)/6 = 0.167	=(10-12)/12 = -0.167	=0.167/-0.167 = 1	Unit elastic