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25 July, 15:47

Suppose that when the price of a good falls from $12 to $9, the quantity demanded of that good rises from 310 units to 350 units. What is the approximate price elasticity of demand between these two prices?

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  1. 25 July, 18:17
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    The approximate price elasticity of demand between these two prices is

    - 0.42

    Explanation:

    In this question, we use the formula of price elasticity of demand which is shown below:

    Price elasticity of demand = Percentage change in quantity demanded : Percentage change in price

    where,

    Percentage change in quantity demanded is calculated by

    = New Quantity - Old quantity : New Quantity + Old quantity

    = 350 - 310 : 350 + 310

    = 40 : 660

    = 0.06060

    Percentage change in price is calculated by

    = New price - Old price : New price + Old price

    = 9 - 12 : 9 + 12

    = - 3 : 21

    = - 0.14285

    Now put these values over the above formula

    So, the answer is = 0.06060 : - 0.14285 = - 0.42

    Hence, the approximate price elasticity of demand between these two prices is - 0.42
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