Question

1. You find the following data on the demand for Compact discs in the city. Price (s) Quantity demanded (I|Quantity demanded (I - $10,000) - S12,000) 45 al 2. Use the midpoint method to calculate the elasticity-price of the demand when the price of CDs increases from $8 to $10, if 1) I is $10,000 and 2) I is $12,000. Briefly explains the result obtained in 1) and 2). 3. Calculate the elasticity-revenue of demand when income increases from $10,000 to $12,000 if 1) Px $12 and P x $16. Briefly explains the result obtained in 1) and 2).

Answer 1

I= $10,000 (1) Midpoint mathod for PED (Q, -20) PED = Q,= Nenw quonhty Q0z old quanaty Pi Neus piie Po = old price - Po P, + Po Po $8 Q,= P,=$10 32 Applying the midpoint fornuula C3an40) PED = 36 $8) $10 $18 $10 + $ 8 - 0.2222

$12,000 New quantty old quantty P, = New pice old price = 45 Q0= 50 Po Appluy ig for neula pr mid porut PED = (So t45) (8480) C$ 10 - $8 P + Po P + Po $10+ $8 95 O.105 47.5 O-222 18 2- O.47 which in unit elastic. The percent PED = ) Change in price is equal to percent cange in quanhty PED LI, LE b melastic In