Question

As the price of gummy bears rises from $2.40 to $2.80, what is the price elasticity of demand of (i) sugar-free gummy bears and of (ii) ordinary gummy bears? use the midpoint method and specify answers to one decimal place. be sure to use the absolute value for the elasticity of demand.

Answer 1

the price of gummy bears rises from $2.45 to $2.85, what is the price elasticity of demand of (i) sugar-free gummy bears and of (ii) ordinary gummy bears? Use the midpoint method and specify answers to one decimal place. Be sure to use the absolute value for the elasticity of demand.

Answer 2

The price elasticity of demand is simply the change in the quantity over the change in the price.

• The price elasticity of demand of sugar-free gummy bears is 0.7
• The price elasticity of demand of ordinary gummy bears is 2.1

See attachment for table of values.

(a) Sugar free gummy bears

From the table,

When price changes from $2.40 to $2.80,

The quantity changes from 175 to 157

So, we have:

$P_1 = 2.40; P_2 = 2.80\\Q_1 = 175; Q_2 = 157$

Using the midpoint method, the price elasticity of demand is:

$E_d = \frac{(Q_2 - Q_1)/[(Q_1 + Q_2)/2]}{(P_2 - P_1)/[(P_1 + P_2)/2]}$

So, we have:

$E_d = \frac{(157- 175)/[(157+ 175)/2]}{(2.80 - 2.40)/[(2.80 + 2.40)/2]}$

$E_d = \frac{-18/166}{0.40/2.60}$

$E_d = -0.7$

(b) Ordinary gummy bears

From the table,

When price changes from $2.40 to $2.80,

The quantity changes from 379 to 273

So, we have:

$P_1 = 2.40; P_2 = 2.80\\Q_1 = 379; Q_2 = 273$

Using the midpoint method, the price elasticity of demand is:

$E_d = \frac{(Q_2 - Q_1)/[(Q_1 + Q_2)/2]}{(P_2 - P_1)/[(P_1 + P_2)/2]}$

So, we have:

$E_d = \frac{(273- 379)/[(273+ 379)/2]}{(2.80 - 2.40)/[(2.80 + 2.40)/2]}$

$E_d = \frac{-106/326}{0.40/2.60}$

$E_d = -2.1$

Hence, the elasticity of demand of sugar-free and ordinary gummy bears are 0.7 and 2.1, respectively.

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