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Suppose the demand for baby shoes in a small town is described by the equation Q = 50 - aP, where...

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Suppose the demand for baby shoes in a small town is described by the equation Q = 50 - aP, where Q is the quantity of baby shoes demanded, P is the average price of a pair of baby shoes, and the coefficient on P (in this case "-a") measures the effect of a $1 change in price on quantity demanded. If the price elasticity of demand is known to be -0.5, what is the coefficient if the initial price is $10 and quantity demanded is 100?

a. -0.5

b. -20

c. -0.2

d. -5

Point Price Elasticity

The price elasticity of demand can be calculated over a range of values and its expressed as the arc price elasticity. There is also a calculation for point price elasticity where the elasticity is calculated, not over a range of values, but at an exact point on the demand curve.

Answer and Explanation: 1

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The answer is d. - 5

The equation for the point price elasticity is the derivative of the inverse demand equation times price over quantity.

{eq}e_{...

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The Elasticity of Demand: Definition, Formula & Examples

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Chapter 3 / Lesson 7
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Understand what elasticity of demand is and discover different types of elasticity of demand. Learn how it is measured and review the elasticity of demand formula.


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