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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?

5
0.004
0.2
0.5

1 answer

To calculate the price elasticity of demand (PED) for peanut butter when the price changes, we use the formula:

\[ \text{Price Elasticity of Demand (PED)} = \frac{% \text{ Change in Quantity Demanded}}{% \text{ Change in Price}} \]

  1. Calculate the % Change in Price:

    • Initial Price (P1) = $2.00
    • New Price (P2) = $0.40
    • Change in Price = P2 - P1 = $0.40 - $2.00 = -$1.60
    • % Change in Price = \(\frac{\text{Change in Price}}{\text{Initial Price}} \times 100\) \[ % \text{ Change in Price} = \frac{-1.60}{2.00} \times 100 = -80% \]

  2. Assuming Quantity Demanded Changes:

    • You would also need the quantity quantities at the initial and new prices to calculate the % change in quantity demanded. If you had these figures, say \(Q1\) and \(Q2\), then: \[ % \text{ Change in Quantity Demanded} = \frac{Q2 - Q1}{Q1} \times 100 \]
    • However, since this data is not provided in your question, we can mention the steps but cannot calculate the exact elasticity without those figures.

  3. Assuming Values for Quantity Demanded:

    • For theoretical understanding, let's assume that the quantity demanded increased significantly as the price dropped. If you hypothesizing or have values, let's say:
      • \( Q1 = 100 \) units at $2.00
      • \( Q2 = 500 \) units at $0.40 Then: \[ % \text{ Change in Quantity Demanded} = \frac{500 - 100}{100} \times 100 = 400% \]

  4. Now calculate PED:

    • Using the earlier % Change in Price and assumed % Change in Quantity Demanded: \[ \text{PED} = \frac{400%}{-80%} = -5 \]

  5. Final Note:

    • Without actual quantity demanded data, you can't calculate a definitive elasticity. The answer choices you provided seem to not represent a classic elasticity calculation. The key component we are missing is the quantity demanded at the two different prices in order to complete the PED calculation.

If you provide quantities for the demand at those price points or any additional data, I could assist you with the final answer.