Homework SourseJills Sausage Dog Stand projects the following demand for Ji
Jill\'s Sausage Dog Stand projects the following demand for Jill\'s sausage dogs:
Calculate the price elasticity of demand between $2 and $4.---------------
The price elasticity of demand between $2 and $4 is ------------------
Is demand between the prices of $2 and $4 elastic or inelastic?
Calculate the price elasticity of demand between $4 and $6.
The price elasticity of demand between $4 and $6 is ------------------------------
Is demand in this range elastic or inelastic? ---------------------
| Price ($) | Quantity Purchased (per day) |
|---|---|
| 2 | 50 |
| 4 | 40 |
| 6 | 20 |
Solution
The price elasticity of demand (Ep) between $2 and $4 is as below:
Ep = (% change in quantity demanded) / (% change in price)
= [{(40 – 50) / 50} × 100] / [{(4 – 2) / 2} × 100]
= - 0.2 (Answer)
If Arc method is used, Ep = [(40 – 50) / {(40 + 50) / 2}] / [(4 – 2) / {(2 + 4) / 2}] = - 0.33
Since Ep < 1, demand is inelastic.
The price elasticity of demand (Ep) between $4 and $6 is as below:
Ep = (% change in quantity demanded) / (% change in price)
= [{(20 – 40) / 40} × 100] / [{(6 – 4) / 4} × 100]
= - 1 (Answer)
If Arc method is used, Ep = [(20 – 40) / {(20 + 40) / 2}] / [(6 – 4) / {(6 + 4) / 2}] = - 1.67
Since Ep > 1, demand is elastic.
