Question

Q4) The price of a luxury car increased from 42.000 euros to 44.000 euros. Then the demand for

this car declined from 100 units to 20 units. Calculate the price elasticity of demand for the car.

Answer 1

Price elasticity of demand = 28.67 (Approx.)

Step-by-step explanation:

Given:

Old price of car = 42.000 euros

New price of car = 44.000 euros

Quantity of car old = 100 units

Quantity of car new = 20 units

Find:

Price elasticity of car

Computation:

Price elasticity of demand = (Percentage change in quantity)/(Percentage change in price)

Price elasticity of demand = [{(Q2-Q1)100}/{(Q1+Q2)/2}] / [{(P2-P1)100}/{(P1+P2)/2}]

Price elasticity of demand = [{(20-100)100}/{(20+100)/2}] / [{(44000-42000)100}/{(44000+42000)/2}]

Price elasticity of demand = [{-8000}/{60}] / [{200000}/{(43000}]

Price elasticity of demand = 133.33 / 4.65

Price elasticity of demand = 28.67 (Approx.)