Question

At Roy's Music Shack, when the price of CDs is $13, 600 are demanded When the price of CDs is $14, 500 are demanded. using the averages of the two prices and quantities, the price elasticity of demand for CDs is . (Round your answer to one decimal place, and express your answer in absolute value.)

Answer 1

Average of the prices= ( p 1 + p 2 ) /2

P 1= 13

P 2 = 14

average of the prices= (13+ 14) / 2

= $13.5

average of the quantities demanded= (q 1+ q 2) / 2

Q 1= 600 units

Q 2= 500 units

average of the quantities demanded = 600+500 / 2

= 550 units

elasticity of demand can be calculated by using the following formula -:

(original quantity- new quantity / original quantity + new quantity) / (Original price- new price / original price + new price)

hence in this way

E_D = [ (600-500)/ (600+500) ] / [ (13-14) / (13+14) ]

= [ 100/ 1100] / [ -1/ 27]

= 0.090 / - 0.037

= - 2.4

ANSWER- Price elasticity of demand = (- 2.4)