Final answer:
The elasticity of demand is calculated using the formula E = (% change in quantity) / (% change in price). By applying this formula, we can determine the elasticity of demand as the price falls from 5 to 4 and from 9 to 8. In both cases, the elasticity of demand is greater than 1, indicating elastic demand.
Step-by-step explanation:
The formula for elasticity of demand is given by:
E = (% change in quantity) / (% change in price)
Let's calculate the elasticity as the price falls from 5 to 4:
Quantity at price 5 = 2/5 = 0.4
Quantity at price 4 = 2/4 = 0.5
% change in quantity = ((0.5 - 0.4) / ((0.5 + 0.4)/2)) * 100 = 12.5%
% change in price = ((4 - 5) / ((4 + 5)/2)) * 100 = -22.22%
Elasticity = (12.5% / -22.22%) = -0.563
Now let's calculate the elasticity as the price falls from 9 to 8:
Quantity at price 9 = 2/9 = 0.2222
Quantity at price 8 = 2/8 = 0.25
% change in quantity = ((0.25 - 0.2222) / ((0.25 + 0.2222)/2)) * 100 = 12.22%
% change in price = ((8 - 9) / ((8 + 9)/2)) * 100 = -10.53%
Elasticity = (12.22% / -10.53%) = -1.16
Since the elasticity of demand is greater than 1 in both cases, we can conclude that the demand is elastic.