Question

Suppose that when the price of a good decreases from $220 to $180, the quantity demanded of that good rises from 12 units to 14 units. What is the approximate price elasticity of demand between these two prices

Answer 1

Answer:

the price elasticity of demand is -0.77

Explanation:

The computation of the price elasticity of demand is as follows;

= (change in quantity demanded ÷ average of quantity demanded) ÷ (percentage change in price ÷ average of price)  

Here,

Change in quantity demanded is

= Q2 - Q1

= 14 - 12

= 2

And, average of quantity demanded is

= ( 14 + 12) ÷ 2

= 13

Change in price  is

= P2 - P1

= $180 - $220

= -$40

And, average of price is

= ($180 + $220 ) ÷ 2

= 200

So, after solving this, the price elasticity of demand is -0.77