Question
what is the elastic of demand for peanut butter when the price changes from $2.00 to $0.40 as shown by this supply and demand curve?
0.5
0.004
0.2
5
0.5
0.004
0.2
5
Answers
GPT-4o mini
To calculate the price elasticity of demand (Ed) between two prices, you can use the following formula:
\[
E_d = \frac{\%\Delta Q_d}{\%\Delta P}
\]
Where:
- \(\%\Delta Q_d\) is the percentage change in quantity demanded.
- \(\%\Delta P\) is the percentage change in price.
From your question, the price of peanut butter changes from $2.00 to $0.40.
1. **Calculate the percentage change in price (\(\%\Delta P\))**:
\[
\%\Delta P = \frac{P_{new} - P_{old}}{P_{old}} \times 100 = \frac{0.40 - 2.00}{2.00} \times 100 = \frac{-1.60}{2.00} \times 100 = -80\%
\]
2. **Assuming some hypothetical percentage change in quantity demanded (\(\%\Delta Q_d\)) since it's not specified**. For example, if we assume the quantity demanded increased by 200% (this value will vary based on the supply and demand curve).
\[
\%\Delta Q_d = 200\%
\]
3. **Now calculate \(E_d\)**:
\[
E_d = \frac{200\%}{-80\%} = -2.5
\]
Since elasticity is often treated as an absolute value:
\[
|E_d| = 2.5
\]
4. **If we use actual values based on choices given**. Let's find an Ed value in your options:
- If the quantity demanded more than doubles, the choices given may correspond to a much smaller or larger demand change. For example, if \(\%\Delta Q_d = 40\%\):
\[
E_d = \frac{40\%}{-80\%} = -0.5
\]
- This is closer to one of your options, and you can adjust until you match one of those values. If we were to consider more measures based on demand sensitivity, the calculated Ed value might suggest \(0.5\).
From the answers provided, if the demand changes significantly with respect to price changes, a likely choice will be \(5\) or some derivative. However, the exact quantity change will pinpoint the actual value from the given list.
In typical scenarios, a major price drop may lead to higher elasticity, so you could settle at the closest estimate, which would point to \(5\) if demand significantly increased in proportion to the market reaction.
In summary, you would determine the values based on further context of the demand curve shift, and with the basic calc, the elasticity value of about \(5\) fits in the considerable increase scenario.
\[
E_d = \frac{\%\Delta Q_d}{\%\Delta P}
\]
Where:
- \(\%\Delta Q_d\) is the percentage change in quantity demanded.
- \(\%\Delta P\) is the percentage change in price.
From your question, the price of peanut butter changes from $2.00 to $0.40.
1. **Calculate the percentage change in price (\(\%\Delta P\))**:
\[
\%\Delta P = \frac{P_{new} - P_{old}}{P_{old}} \times 100 = \frac{0.40 - 2.00}{2.00} \times 100 = \frac{-1.60}{2.00} \times 100 = -80\%
\]
2. **Assuming some hypothetical percentage change in quantity demanded (\(\%\Delta Q_d\)) since it's not specified**. For example, if we assume the quantity demanded increased by 200% (this value will vary based on the supply and demand curve).
\[
\%\Delta Q_d = 200\%
\]
3. **Now calculate \(E_d\)**:
\[
E_d = \frac{200\%}{-80\%} = -2.5
\]
Since elasticity is often treated as an absolute value:
\[
|E_d| = 2.5
\]
4. **If we use actual values based on choices given**. Let's find an Ed value in your options:
- If the quantity demanded more than doubles, the choices given may correspond to a much smaller or larger demand change. For example, if \(\%\Delta Q_d = 40\%\):
\[
E_d = \frac{40\%}{-80\%} = -0.5
\]
- This is closer to one of your options, and you can adjust until you match one of those values. If we were to consider more measures based on demand sensitivity, the calculated Ed value might suggest \(0.5\).
From the answers provided, if the demand changes significantly with respect to price changes, a likely choice will be \(5\) or some derivative. However, the exact quantity change will pinpoint the actual value from the given list.
In typical scenarios, a major price drop may lead to higher elasticity, so you could settle at the closest estimate, which would point to \(5\) if demand significantly increased in proportion to the market reaction.
In summary, you would determine the values based on further context of the demand curve shift, and with the basic calc, the elasticity value of about \(5\) fits in the considerable increase scenario.