To calculate the elasticity of demand (Ed) between two points, you can use the following formula:
\[ E_d = \frac{%\ \text{Change in Quantity Demanded}}{%\ \text{Change in Price}} \]
First, we need to determine the percentage change in quantity demanded and the percentage change in price.
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Calculate 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 = \(\frac{Change\ in\ Price}{Initial\ Price}\) * 100
- Percentage Change in Price = \(\frac{-1.60}{2.00} \times 100 = -80%\)
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Calculate the percentage change in quantity demanded:
- You need the initial and new quantity demanded values, which are not given in the question. Assume you have these values (let’s call them Q1 and Q2).
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Insert values into the elasticity formula: \[ E_d = \frac{%\ \text{Change in Quantity Demanded}}{-80} \]
Since we do not have the actual quantity demanded values, we cannot calculate the exact elasticity of demand.
However, if we refer to the given options (5, 0.2, 0.5, 0.004), it appears logical that the demand is likely elastic because a drop from $2.00 to $0.40 is quite significant.
Given the standard assumption that such a large price drop significantly increases quantity demanded, we might infer that the elasticity is greater than 1.
Without the specific quantity demanded, we can't definitively select an answer, but we might suggest that the option "5" could reflect a highly elastic demand if the corresponding increase in quantity demanded is substantial.
Please provide the quantity demanded values for a precise calculation.
1 answer