Jim saw a decrease in the quantity demanded for his firm's product from 8000 to 6000 units
Jim saw a decrease in the quantity demanded for his firm's product from 8000 to 6000 units a week when he raised the price of the product from $200 to $250 Based on this information, the price elasticity of demand for Jim's product
a. 1
b. less than 1
c. greater than 1
d. 0
Homework Answers
ANSWER:
Price elasticity of demand = % change in quantity / % change in price
% change in quantity = (q2 - q1) / (q2 + q1) / 2 = (6000 - 8000) / (6000 + 8000) / 2 = -2000 / 7000 = -2 / 7
% change in price = (p2 - p1) / (p2 + p1) / 2 = (250 - 200) / (250 + 200) / 2 = 50 / 225 = 2 / 9
Price elasticity of demand = -2 / 7 / 2 / 9 = 9 / 7 = 1.28
so the correct answer is option c that is greater than 1.
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