Question

Suppose the demand for Head tennis rackets is Di. ustrated in the figure to the right What is the elastlicity of demand between prices $80 and 570 along D, (use the midpoint formula)?(Enter a numeric response using a real number rounded to two decimal places.Don't forget the minus sign)

Answer 1

Answer-

Answer 1: The elasticity of demand = % change in demand/% change in price. According to the midpoint formula, the average of the new and the old quantity or price are taken as the base.

Average of new and old price = (90 + 70)/2 = 160/2 = 80

Average of new and old quantity = (5 + 10)/2 = 15/2 = 7.5

% change in demand = (10 - 5)/7.5 * 100 = 5/7.5 * 100 = 0.6666 * 100 = 66.66%

% change in price = (70 - 90)/80 * 100 = -20/80 * 100 = -0.25 * 100 = -25%

So, the price elasticity of demand = 66.66/25 = - 2.66

Answer 2: Less elastic.

Explanation: The D2 demand curve is steeper than the D1 demand curve. That means the rate of change in demand with price is lower in the D2 curve than the D1 curve. So, the D2 curve is relatively inelastic i.e. less elastic. Note that the flatter a demand curve, the more elastic it is and the steeper is a demand curve, the more inelastic it is.