94 In a local market the monthly price of Internet access se

9-4. In a local market, the monthly price of Internet access service decreases from $20 per account to $10 per account, and the total quantity of monthly accounts across all Internet access providers increases from 100,000 to 200,000. What is the price elasticity of demand? Is demand elastic, unit- elastic, or inelastic? (See pages 434 -435.)

Solution

Change in Price: 20-10 = -10 Average price: (20+10) /2 = 15 % Change in price: Change in price / Aaverage price (-10 /15 )= -66.67% Change in demand: 200,000-100000 = 100,000 Average Demand: (200,000+100000) /2 = 150000 % Change in demand: Change in demand/ Average deamnd 100000 /150000 *100 = 66.67% Price elasticity of demand: % Change in demnad/ % Change in price 66.67% / -66.67% = - 1 Hence, Price elasticity is UNIT ELASTIC