Question

Draw a graph AND calculate the price elasticity of the demand for chocolate bars if the price goes from $2 to $3, causing you to change your weekly consumption from 8 bars per week to 5. Show all work and explain what the outcome means to a business!

Answer 1

The formula for the price elasticity is given by
e = [(Q2 - Q1) / Q1] / [(P2 - P1) / P1]
Substituting the given values
e = [(5 - 8) / 8] / [(3 - 2) / 2]
e = -0.75
The demand is inelastic since the elasticity is less than 1. The graph would be a line sloping towards the left.