Question

8. Suppose that Grandy has a demand function q = 10 - 2p 1) What is the price elasticity of demand when the price is 3? 2) At what price is the elasticity of demand equal to -1? 3) Suppose that her demand function takes the general form q = a - bp. Write down the price elasticity of demand as a function of p.

Answer 1

8) Price elasticity of dermed (PED) in differential equaltan is given by : I PED = d (O) XP a) = d (10-21), s dp 10-2p = -2 & P 1002 bellen (p=43 - - 2x3 10-243 - - 6 PER = -1.5

Similarly, b) b) Pene when [p = -1 When PED = -1 -1. d (10-2p! xD al - 2 x L 10-21 - 1= -21 10-2p -10+2p=-28 up-lo - p-$2.5 Here q . a-bp (hlard cb' are constants) in PED= d.la-bp) & 2 - -bx P PED