To calculate the price elasticity of demand, you can use the formula:
\[ \text{Elasticity (E)} = \frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}} \]
First, we need the initial and final prices, along with the quantity demanded at those prices, which are generally found on the demand curve. Assuming you have the values following the price changes from $2.00 to $0.40, and the corresponding quantities at those prices, you would proceed as follows:
-
Determine the percentage change in price:
- Initial Price (P1) = $2.00
- New Price (P2) = $0.40
- Change in Price = P2 - P1 = $0.40 - $2.00 = -$1.60
- Percentage change in price = \(\frac{\text{Change in Price}}{\text{Initial Price}} \times 100 = \frac{-1.60}{2.00} \times 100 = -80%\)
-
Determine the percentage change in quantity demanded:
- Similarly, find the initial and final quantities (Q1 and Q2) from the graph at the respective prices.
- Calculate the change in quantity (\(Q2 - Q1\)) and then find the percentage change.
-
Plug these values into the elasticity formula.
Once you calculate both the percentage change in quantity and the percentage change in price, you can find the elasticity.
Interpreting Elasticity:
- If E > 1, demand is elastic.
- If E < 1, demand is inelastic.
- If E = 1, demand is unitary elastic.
Without the specific quantity values from the graph, we can't compute an exact number. However, based on the multiple choice options given:
- If you have found the elasticity to be .5, .004, 5, or .2 through calculations, choose the one that correctly reflects your findings from the exercise.
If you happen to have the quantities or additional information, please provide those for a more precise calculation. If the graph shows a direct relationship leading to one of the elasticity values, use that to determine your answer as well.
1 answer