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Question

A demand curve is graphed. A line graph is titled Demand for Peanut Butter. The horizontal axis labeled Quantity goes from 0 to 600 in increments of 100. The vertical axis labeled Price goes from 0 to 2.00 dollars in increments of 0.40 dollars. A line segment passes through points (100, 2.00 dollars), (200, 1.60 dollars), (300, 1.20 dollars), (400, 0.80 dollars) and (500, 0.40 dollars).

























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?

(1 point)
Responses

0.004
0.004

5
5

0.2
0.2

0.5

Answer 1

To calculate the elasticity of demand, we can use the formula for the price elasticity of demand:

\[ E_d = \frac{%\ \text{change in quantity demanded}}{%\ \text{change in price}} \]

1. Determine the changes in quantity and price:

   • When the price changes from $2.00 to $0.40:

     • Initial Price (P1) = $2.00
     • New Price (P2) = $0.40
     • Change in Price = P2 - P1 = $0.40 - $2.00 = -$1.60

   • The corresponding quantity changes:

     • Initial Quantity (Q1) = 100 (at $2.00)
     • New Quantity (Q2) = 500 (at $0.40)
     • Change in Quantity = Q2 - Q1 = 500 - 100 = 400

2. Calculate the percentage changes:

   • Percentage change in quantity demanded: \[ %\ \text{change in quantity} = \frac{Q2 - Q1}{Q1} \times 100 = \frac{400}{100} \times 100 = 400% \]

   • Percentage change in price: \[ %\ \text{change in price} = \frac{P2 - P1}{P1} \times 100 = \frac{-1.60}{2.00} \times 100 = -80% \]

3. Calculate elasticity of demand: \[ E_d = \frac{400%}{-80%} = -5 \]

Since we are typically interested in the magnitude of elasticity, we drop the negative sign.

Thus, the elasticity of demand for peanut butter when the price changes from $2.00 to $0.40 is 5.

Answer: 5