Question

Class work CH4 Yesterday, the price of envelopes was $3 a box, and Julie was willing to buy 10 boxes. Today, the price has gone up to $3.75 a box, and Julie is now willing to buy 8 boxes a. Calculate Julie's Elasticity of demand? (1pt) b. Specify which type of elasticity and interpret your answer? (1pt)

Answer 1

solution: a.......Initial price (P) =$3 , Initial quantity demand (Q)=10 unit , Change in price ($\Delta$P) = $0.75 Change in quantity demand ($\Delta$Q) = 2

Elasticity of demand (ep) = ($\Delta$Q/$\Delta$P)×P/Q

=(2/0.75)×3/10 =4/5 =0.8

b...... Thus elasticity of demand for the good is inelastic (ep<1).Here proportionate change in the price is higher than proportionate change in the quantity demand.

c......The values of price elasticity of demand (ep) can range between zero to infinity.

ep =0 tpen the demand is perfectly inelastic (no change in quantity demand in response of change in price)

ep = $\alpha$ (infinitive) the demand is perfectly elastic

ep=1 the demand is unitary elastic.