(a)
Answer to Problem 1E
At price $10 per
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 Demand (Ed) as per mid-point method:
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.
Want to see more full solutions like this?
- Estimates presented in Exhibit 5 show that Android users have a higher price elasticity of demand for apps in the Google Play Store than do iPhone users in the Apple App Store. Why might Android users tend to be more sensitive to app prices than iPhone users? What categories or types of apps (for example, games/social media) do you think have the highest price elasticities?arrow_forward(Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of Si per unit. A reduction in price to $0.20 results in an increase in quantity demanded to 70 units. Using the midpoint formula, show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in the price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve?arrow_forwardProve that price elasticity of demand is not the same as the slope of a demand curve.arrow_forward
- Using the following equation for the demand for a good or service, calculate the price elasticity of demand (using the point form), cross-price elasticity with good x and income elasticity. Q=82P+0.10I+Px Q is quantity demanded, P is the product price. P1 is the price of a related good, and I is income. Assume that P= $10, I = 100, and Px = 20.arrow_forwardPlot the price and quantity data given in the demand schedule of exercise 1. Put price on the vertical axis and quantity on the horizontal axis. Indicate the price elasticity value at each quantity demanded. Explain why the elasticity value gets smaller as you move down the demand curve.arrow_forwardIf the elasticity of demand for hamburgers equals 21.5 and the quantity demanded equals 40,000, predict what will happen to the quantity demanded of hamburgers when the price increases by 10 percent. If the price falls by 5 percent, what will happen?arrow_forward
- Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
- Economics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub CoEconomics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning