To calculate the price elasticity of demand, we can use the formula:
\[ \text{Elasticity of Demand} = \frac{%\text{ Change in Quantity Demanded}}{%\text{ Change in Price}} \]
First, we need to determine the percentage change in quantity demanded and the percentage change in price between the two price points ($2.00 and $0.40).
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Calculate the percentage change in price: \[ %\text{ Change in Price} = \frac{\text{New Price} - \text{Old Price}}{\text{Old Price}} \times 100 \] \[ = \frac{0.40 - 2.00}{2.00} \times 100 = \frac{-1.60}{2.00} \times 100 = -80% \]
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Calculate the percentage change in quantity demanded: You will need the quantities at both prices from the demand curve image, which is not provided here. Let's assume you've calculated that when the price dropped from $2.00 to $0.40, the quantity demanded increased from Q1 to Q2.
\[ %\text{ Change in Quantity Demanded} = \frac{\text{New Quantity} - \text{Old Quantity}}{\text{Old Quantity}} \times 100 \]
Let's assume the quantity at $2.00 is \(Q_1\) and at $0.40 is \(Q_2\). It will look something like this:
\[ = \frac{Q_2 - Q_1}{Q_1} \times 100 \]
After calculating this percentage, you substitute that value into the elasticity formula.
- Combine the results: Finally, replace the percentage changes into the elasticity formula to find the elasticity of demand based on your calculated values.
If you provide the specific quantities from the graph at those price points, I could help calculate the specific elasticity.
If your choices are 0.5, 5, 0.2, and 0.004, you'll need to do the calculations to find which one fits.
Remember, if the absolute value of elasticity is greater than 1, demand is elastic; if it's less than 1, it's inelastic; and if it's exactly 1, demand is unitary elastic.