(a)
Answer to Problem 1E
At price $10 per unit,
At price $15, price elasticity of demand = -1.4.
At price $20 per unit, the price elasticity of demand = -3.
At price $25 per unit, price elasticity of demand = -3.67
Explanation of Solution
The arc or mid-point elasticity is calculated in the following way:
Where Ed = coefficient of elasticity
P1 = Initial Price
P2 = New Price
Q1 = Initial Quantity
Q2 = New Quantity
At price $5 per unit, quantity demanded is 100 units, and at price $10 per unit quantity demanded = 80 unit, thus, the elasticity at first point = $5 per unit where price = $5 per unit and quantity demanded = 100 units
P1= $5, Q1 = 100
P2 = $10, Q2= 80
Thus, Ed= -0.33
At price $10 per unit, quantity demanded 80 units, elasticity of demand is calculated as follows:
At price $10 per unit, price elasticity of demand -0.71.
At price $15 per unit, quantity demanded = 60 units, so elasticity is calculated as follows:
At price $15, price elasticity of demand = -1.4.
At price $20 per unit, quantity demanded = 40 units, elasticity is calculated as follows:
At price $20 per unit, the price elasticity of demand = -3.
At price $25 per unit, the quantity of demand = 20 units, so, elasticity is calculated as:
At price $25 per unit, price elasticity of demand = -3.67
Introduction:
The arc or mid-point elasticity is calculated in the following way:
Elasticity of
Where Ed = coefficient of elasticity
P1 = Initial Price
P2 = New Price
Q1 = Initial Quantity
Q2 = New Quantity
(b)
Price elasticity when price changes by $10.
Answer to Problem 1E
At price $5 with price changes of $10, price elasticity of demand is -0.5.
At price $10 with price changes of $10, price elasticity of demand = -1
At price $15 with price changes of $10, price elasticity of demand is -2.
At price changes $10, the price elasticity of demand is -3.
Explanation of Solution
Using price changes of $10, we compare the price and quantity changes with $10 increments.
Ed as per mid-point method.
Where Ed = coefficient of elasticity
P1 = Initial Price
P2 = New Price
Q1 = Initial Quantity
Q2 = New Quantity
At price $5 per unit, the quantity demanded is 100 units and at price $15 per unit, the quantity demanded is 60 units, thus elasticity at $5 per unit is:
Thus, at price $5 with price changes of $10, price elasticity of demand is -0.5
At price of $10 per unit. Quantity demanded = 80 unit and at price = $20 per unit, quantity demanded= 40 units, thus, elasticity at $10 per unit is:
At price $10 with price changes of $10, price elasticity of demand = -1
At price $15 per unit, quantity demanded= 60 units and at price $25 per unit, quantity demanded = 20 units, thus elasticity at $15 per unit is:
Thus, at price $15 with price changes of $10, price elasticity of demand is -2.
At price $20 per unit, quantity demanded = 40 units and at price = $30 per unit, quantity demanded = 10 units, thus elasticity at $20 per unit.
Thus, at price changes $10, the price elasticity of demand is -3.
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