4 Assume that you have two periods 2011 and 2012 for a picku

4) Assume that you have two periods: 2011 and 2012 for a pickup truck. Price 2011 is $30,000 and price 2012 is $40,000. In 2011 20,000 sold and in 2012 18,000 sold. Calculate the price elasticity of demand. Show work.

Solution

Price elasticity of demand = % change in quantity demanded / % change in price

Price Ed = (P₁ + P₂)/(Q₁ + Q₂) x (Q₂ - Q₁)/(P₂ - P₁)

P₁ = 30,000

P₂ = 40,000

Q₁ = 20,000

Q₂ = 18,000

Ed = 70,000/38000 x - 2000/10000 = - 14/38 = - 0.37