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17 September, 22:59

Q = 17-2P+3P/S where P is the price of the product and Upper P Subscript Upper S is the price of a substitute good. The price of the substitute good is $2.40. Suppose P= $0.60. The price elasticity of demand is

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  1. 18 September, 01:00
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    Answer: The Price Elasticity of demand is Inelastic at 0.05

    Explanation: Elasticity of demand is the degree of responsiveness of price to quantity demanded.

    Using the equation; Q = 17-2P+3P/S

    Where P = $0.60; P/S = $2.40

    Q = 17 - 2 (0.60) + 3 (2.40)

    = 17 - 1.20 + 7.20 = 23

    Price elasticity of demand at Price = $0.60 is change in price x Price / quantity

    Therefore; - 2 * 0.6/23 = - 0.05

    Using absolute value, the Price elasticity = 0.05

    This is inelastic because demand is less than 1.
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