Question

When the price of shirts emblazoned with a college logo is $20, consumers buy 150 per week. When the price declines to $19, consumers purchase 200 per week. Based on this information, calculate the price elasticity of demand for logo-emblazoned shirts. The diagram below depicts the demand curve for "miniburgers" in a nationwide fast-food market. Use the information in this diagram to answer the questions that follow. What is the price elasticity of demand along the range of the demand curve between a price of $0.20 per miniburger and a price of $0.40 per miniburger? Is demand elastic or inelastic over this range?

Answer 1

The price elasticity of demand for logo-emblazoned shirts is -5.56, indicating elastic demand over the given price range.

To calculate the price elasticity of demand, we use the formula:

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

To find the % change in quantity, we subtract the initial quantity from the final quantity and divide it by the average of the two quantities.

Similarly, to find the % change in price, we subtract the initial price from the final price and divide it by the average of the two prices.

Using the given information:

Initial quantity = 150 shirts

Final quantity = 200 shirts

Initial price = $20

Final price = $19

Now, let's calculate the price elasticity of demand for logo-emblazoned shirts:

% Change in Quantity Demanded = (200 - 150) / ((200 + 150) / 2) * 100% = 50 / 175 * 100%
= 28.57%

% Change in Price = (19 - 20) / ((19 + 20) / 2) * 100% = -1 / 19.50 * 100%
= - 5.13%

Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price)
= 28.57% / - 5.13%

Therefore, the price elasticity of demand for logo-emblazoned shirts is approximately -5.56.

Since the price elasticity of demand is negative, we can conclude that the demand for logo-emblazoned shirts is elastic over this price range.