Question

10 pts

If an increase in price from $5 to $6 causes quantity to fall from 500 to 470, calculate the price elasticity of
demand. Note that economists express the price elasticity of demand as a positive number.

Answer 1

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Using the formula, we can calculate the price elasticity of demand as follows:

Price elasticity of demand = ((Q2 - Q1) / ((Q1 + Q2) / 2)) / ((P2 - P1) / ((P1 + P2) / 2))

Where:

Q1 = 500

Q2 = 470

P1 = 5

P2 = 6

Price elasticity of demand = ((470 - 500) / ((500 + 470) / 2)) / ((6 - 5) / ((5 + 6) / 2))

Price elasticity of demand = (-30 / 485) / (1 / 5.5)

Price elasticity of demand = -0.3144

Since economists express the price elasticity of demand as a positive number, we can take the absolute value of the result to get the price elasticity of demand as 0.3144.