Homework Answers
At point A
QA=100, PA=18
At point B
QB=300, PB=12
At point C
QC=500, PC=6
a)
Let us calculate the price elasticity of demand between point A and point B
Change in Price=(PB-PA)=(12-18)=-6
Average price=(PB+PA)/2=(12+18)/2=15
Percent change in price=Change in price/Average price=-6/15=-40.00%
Change in quantity demanded=(QB-QA)=(300-100)=200
Average quantity demanded=(QB+QA)/2=(300+100)/2=200
Percent change in quantity demanded=Change in quantity demanded/Average quantity demanded=200/200=100.00%
Price elasticity of demand=Percent change in quantity demanded/Percent change in price
=(100.00%)/(-40.00%)=-2.50
Absolute value of price elasticity of demand is higher than 1, we can say that demand is elastic between point A and point B.
b)
Let us calculate the price elasticity of demand between point B and point C
Change in Price=(PC-PB)=(6-12)=-6
Average price=(PC+PB)/2=(6+12)/2=9
Percent change in price=Change in price/Average price=-6/9=-66.6667%
Change in quantity demanded=(QC-QB)=(500-300)=200
Average quantity demanded=(QC+QB)/2=(500+300)/2=400
Percent change in quantity demanded=Change in quantity demanded/Average quantity demanded=200/400=50.00%
Price elasticity of demand=Percent change in quantity demanded/Percent change in price
=(50.00%)/(-66.6667%)=-0.75
Absolute value of price elasticity of demand is lower than 1, we can say that demand is inelastic between point B and point C.
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