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When the price of a good increases from 7 to 11, the quantity decreases from 70 to 44. Find the...

Question:

When the price of a good increases from 7 to 11, the quantity decreases from 70 to 44. Find the price elasticity of demand. (Round to 2 decimals.)

Answer and Explanation:

The price elasticity of demand is -1.02.

We can use the mid-point method to compute the price elasticity of demand, which is the ratio of the percentage change in quantity demanded to the percentage change in price.

First we compute the percentage change in quantity demanded:

  • percentage change in quantity demanded = (44 - 70) / ((44 + 70)/2) = -0.4561

Next, we compute the percentage change in price:

  • percentage change in price = (11 - 7) / ( (11 + 7) / 2) = 0.4444

Then the elasticity of substitution = -0.4561 / 0.4444 = -1.02.


Learn more about this topic:

Price Elasticity of Demand: Definition, Formula & Example

from Intro to Business: Help and Review

Chapter 3 / Lesson 54
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