To calculate the elasticity of demand, you can use the following formula:
\[ E_d = \frac{\text{Percentage Change in Quantity Demanded}}{\text{Percentage Change in Price}} \]
-
Calculate the percentage change in price:
- Initial Price (P1) = $2.00
- New Price (P2) = $0.40
- Percentage Change in Price = \(\frac{P2 - P1}{P1} \times 100\)
\[ \text{Percentage Change in Price} = \frac{0.40 - 2.00}{2.00} \times 100 = \frac{-1.60}{2.00} \times 100 = -80% \]
-
Assume you have data for the corresponding quantity demanded changes. Without specific quantity changes provided, let's consider hypothetical quantity changes to illustrate the calculation.
- Let's say the quantity demanded at $2.00 was 100 units (Q1) and at $0.40 it increased to 600 units (Q2).
- Percentage Change in Quantity Demanded = \(\frac{Q2 - Q1}{Q1} \times 100\)
\[ \text{Percentage Change in Quantity Demanded} = \frac{600 - 100}{100} \times 100 = \frac{500}{100} \times 100 = 500% \]
-
Now plug these values into the elasticity formula:
\[ E_d = \frac{500%}{-80%} = -6.25 \]
Since we're interested in the absolute value for elasticity, we would say it's 6.25, which suggests demand is elastic.
However, without knowing the exact quantity changes, we cannot definitively select the best answer from your provided options just based on the price changes alone.
Based on the options you provided, if we assume hypothetical values or common interpretations of elasticity in economic terms, it seems that 5 is the only potentially reasonable value, implying demand is elastic, which is consistent with a significant drop in price leading to a large increase in quantity demanded.
So, if you need to select from the options given the usual characteristics of such demand situations:
Answer: 5
1 answer