You have the following information about the product and price of the product in your company:...
You have the following information about the product and price of the product in your company: Price increased from $ 5.00 to $ 8.00 Quantity demanded decreased from 5000 to 5500 Calculate the price elasticity of demand and give an example of a product that would reflect the answer.
Homework Answers
P0 = $5
P1 = $8
Q0 = 5000
Q1 = 5500
It shall be noted that the question does not specify if the price elasticity of demand is to be measured at P0=5 or P1=8
Hence, under such situation arc-price elasticity of demand is generally computed.
The arc-price elasticity of demand is given by:
This shows that price-elasticity is 0.2063
Such low price-elasticity can be observed in case of life-saving medicines.
The quantity demanded change only by a margin relatively, no matter how large the change in the price
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