Question

When the price of a bar of chocolate is $1, demand is 100,000 bars. When the price rises to $1.50, demand falls to 60,000 bars. Calculate the price elasticity of demand according to the instructions below and express your answer in absolute value. a. Suppose price increases from $1 to $1.50. Calculate the price elasticity of demand in terms of percent change. b. Suppose price decreases from $1.50 to $1. Calculate the price elasticity of demand in terms of percent change. c. Suppose the price increases from $1 to $1.50. Calculate the price elasticity of demand using the mid-point method. d. Suppose the price decreases from $1.50 to $1. Calculate the price elasticity of demand using the mid-point method.

Answer 1

Instructions are listed below

Step-by-step explanation:

Price elasticity of demand is an economic measure of the change in the quantity demanded or purchased of a product to its price change. If the quantity demanded of a product exhibits a large change in response to changes in its price, it is termed "elastic," that is, quantity stretched far from its prior point. If the quantity purchased has a small change in response to its price, it is termed "inelastic", or quantity didn't stretch much from its prior point.

Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price

A) PED= [(Q2-Q1)/Q1]/[(P2-P1)/P1]

PED= [(1.5-1)/1]/[(60000-100000)/100000]= 1.25

B) PED= [(1-1.5)/1.5]/[(100000-60000)/60000]= 0.5

C)Midpoint formula:

PED= {(Q2-Q1)/[(Q2+Q1)/2]}/{(P2-P1)/[P2+P1)/2]}

PED= {(60000-100000)/[(60000+100000)/2]}/{(1-1.5)/[1+1.5)/2]}

PED=0.5/0.4= 1.25

D) Midpoint formula:

PED= {(Q2-Q1)/[(Q2+Q1)/2]}/{(P2-P1)/[P2+P1)/2]}

PED= {(100000-60000)/[(100000+60000)/2]}/{(1.5-1)/[1.5+1)/2]}

PED= 0.5/0.4= 1.25