Question

9. Why is there a different elasticity coefficient at a higher price compared to the lower price, even though the demand curve is a straight line? (Think about how we calculate elasticity). 10. If the price elasticity of demand for milk is 3.2 between a price of S3.00 and $3.50, and if consumers are now buying 1000 gallons per day at a price of $3.20, how many gallons of milk will be bought per day if the price goes down to $3.002

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Answer 1

When the demand is straight line, the elasticity coefficient is not same at difference prices because for normal demand, at higher price the demand will be lower and at lower price demand will be more. We calculate elasticity using mid point method formula Elasticity = [Q2 - Q1/Q2 + Q1/2]/[P2 - P1/P2 + P1/2] e = 3.2 for price 3 and 3.5 P Q 3.2 1000 3 1209.205 e = % change in Q% change in P 3.2 = [x - 1000/x + 1000/2]/[3 - 3.2/3 + 3.2/2] So, at price P = 31209 gallon are demanded