Question

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then: Group of answer choices A is an inferior good. the price elasticity of demand is 2.25. A is a complementary good. the price elasticity of demand is 0.44.

Answer 1

The price elasticity of demand is 2.25.

What is the price elasticity?

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

Price elasticity of demand = midpoint change in quantity demanded / midpoint change in price  

Midpoint change in quantity demanded = change in quantity demanded / average of both demands

• change in quantity demanded = 5000 - 3000 = 2000
• average of both demands = (5000 + 3000 ) / 2 = 4000

2000 / 4000 = 0.5

Midpoint change in price = change in price / average of both price

• Change in price = 8 - 10 = -2
• Average of both prices - (8 + 10) / 2 = 9
• Midpoint change in price = (-2/9) = 0.22

Price elasticity = 0.5 / 0.22 = 2.27

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