Question

III. Problems (2 problems) 1. Table 2-A ( Q new - Q old) x 100% (Qold) Quantity Demanded of Good A 5 15 25 35 45 55 Quantity Supplied of Good A 55 45 35 25 15 5 Price of Good A $5.50 $4.50 $3.50 $2.50 $1.50 $0.50 (Pnew - Pold) x 100% (Pold) Refer to Table 2-A. When price decreases from $5.50 to $4.50, please calculate the price elasticity of demand (using regular percentage calculation) of Good A.

Answer 1

1.

Initial price(P1)= $5.50

Initial quantity demand(Q1)= 5

Now as price decreases:

New price(P2)= $4.50

New quantity demand(Q2)= 15

Elasticity of demand= % change in quantity demand / % change in price

% Change in quantity demand= (Change in Quantity/Q1) x 100

% Change in quantity demand= [(15-5)/5] x 100= 200%

% Change in Price= (Change in price/P1) x 100

% Change in Price= [($4.50-$5.50)/$5.50] x 100= 18.18%

Price Elasticity of demand= 200% / 18.18%= 11.00