If a price increase from 5 to 7 causes quantity demanded to

If a price increase from $5 to $7 causes quantity demanded to fall from 150 to 100 and vice-versa, what is the absolute value of the own price elasticity at a price of $7? Note that the question is about the price point of $7, and not $5.

Solution

Own price elasticity = % change in quantity demanded / % change in price

When price = $7, demand = 100

When price = $5, demand = 150

= [(150 - 100) / 100] / $[(5 - 7) / 7]

= 0.5 / - 0.2857

= - 1.75

So, absolute value of elasticity at a price of $7 is 1.725 (elastic demand).