The data below represent a demand schedule.

Product price Quantity demanded

40 10

35 15

30 20

25 25

20 30

Determine the price elasticity of demand between each of the following prices:

a. Between P1 = $40 and P2 = $35, Ed =

b. Between P1 = $35 and P2 = $30, Ed =

c. Between P1 = $30 and P2 = $25, Ed =

d. Between P1 = $25 and P2 = $20, Ed =

a. 5 (relatively elastic demand)

b. 2.33 (relatively elastic demand)

c. 1.50 (relatively elastic demand)

d. 1 (unitary elasticity demand)

Explanation:

P=price. QD=quantity demand

a. P1=40 QD1=10

P2=35 QD2=15

Price elasticity demand = (%change in QD) : (%change in P)

% change in QD = (Qd2-Qd1) : Qd1 * 100

(15-10) : 10 = (5:10) * 100

=50%

%change in price = (P2-P1) : P1 * 100

(35-40) / 40 * 100

=10%

Price elasticity of demand for question a. = 50% : 10% = 5

b. P1=35. QD=15

P2=30. QD=20

Price elasticity demand = (%change in QD) : (%change in P)

% change in QD = (Qd2-Qd1) : Qd1 * 100

(20-15) : 15 = (5:15) * 100

=33.33%

%change in price = (P2-P1) : P1 * 100

(30-35) / 35 * 100

=14.29%

Price elasticity of demand for question b.

= 33.33% : 14.29%

=2.33

c. P1=30. QD=20

P2=25. QD=25

Price elasticity demand = (%change in QD) : (%change in P)

% change in QD = (Qd2-Qd1) : Qd1 * 100

(25-20) : 20 = (5:20) * 100

=25%

%change in price = (P2-P1) : P1 * 100

(25-30) / 30 * 100

=16.67%

Price elasticity of demand for question b.

= 25% : 16.67%

=1.50

d. P1=25. QD=25

P2=20. QD=30

Price elasticity demand = (%change in QD) : (%change in P)

% change in QD = (Qd2-Qd1) : Qd1 * 100

(30-25) : 25 = (5:25) * 100

=20%

%change in price = (P2-P1) : P1 * 100

(20-25) / 25 * 100

=20%

Price elasticity of demand for question b.

= 20% : 20%

=1.00

Note : negative signs are neglected when calculating price elasticity.