Question

With an initial quantity demanded of 10 and initial price of $20, and quantity demanded changing to 15 and price changing to $18, what is the numeric elasticity?

Answer 1

Here, P1 = $20     Q1 = 10

          P2 = $18      Q2 = 15

Elasticity = (Q2 - Q1) / (P2 - P1) * (P1 + P2) / (Q1 + Q2)

               = (15 - 10) / (18 - 20) * (20 + 18) / (10 + 15)

              = (5 / -2) * (38 / 25)

              = (190 / -50)

              = -3.8            

The absolute value of elasticity is 3.8

This elasticity is called Price Elasticity of Demand

Since the absolute value of PED is greater than 1, this elasticity is elastic.