What is the elasticity of demand for peanut butter when the price changes from $2.00 to $0.40 as shown by this supply and demand curve?

Question

(1 point)
Responses

0.5
0.5

5
5

0.2
0.2

0.004

Answer 1

To calculate the elasticity of demand (Ed), you can use the formula:

$$Ed=\frac{}{}$$

First, you'll need to calculate the percentage change in price and the percentage change in quantity demanded.

1. Calculate the percentage change in price:
   • Initial Price (P1) = $2.00
   • New Price (P2) = $0.40

$$\text{Percentage Change in Price}=\frac{P2-P1}{P1}\times 100=\frac{0.40-2.00}{2.00}\times 100=\frac{-1.60}{2.00}\times 100=-80$$

2. Calculate the percentage change in quantity demanded. You will need the quantity demanded at both price levels, which you would typically get from the demand curve. Let’s assume the quantity demanded at $2.00 is Q1 and at $0.40 is Q2. The calculation would then proceed as follows:

$$\text{Percentage Change in Quantity Demanded}=\frac{Q2-Q1}{Q1}\times 100$$

Without specific values for Q1 and Q2, we can't complete the calculation.

Let's assume you find $Q2=10,000$ units demanded when the price is $0.40, and $Q1=2,000$ units demanded when the price is $2.00.

$$\text{Percentage Change in Quantity Demanded}=\frac{10,000-2,000}{2,000}\times 100=\frac{8,000}{2,000}\times 100=400$$

3. Now plug these values into the elasticity formula:

$$Ed=\frac{400}{-80}=-5$$

Since you generally take the absolute value of elasticity, the elasticity of demand for peanut butter is 5.

Among the given options, the answer is:

5.