Question

If the price of a certain brand of sneakers falls from $27.50 to

$22.50, and the quantity demanded by consumers increases from 15 to
25 pairs per week, then using the arc elasticity formula, the price

Answer 1

The price elasticity of demand is calculated using the arc elasticity formula, which considers the percentage change in quantity demanded and the percentage change in price. The elasticity will show whether the demand is elastic, inelastic, or unitary.

Step-by-step explanation:

To calculate the price elasticity of demand using the arc elasticity formula, we need to determine the percentage change in quantity demanded and the percentage change in price, and then divide the former by the latter. In this case, the price of sneakers falls from $27.50 to $22.50, which is a decrease of $5.00. The quantity demanded increases from 15 pairs to 25 pairs, which is an increase of 10 pairs.

The percentage change in price is calculated as (change in price) / ((original price + new price) / 2) × 100, and the percentage change in quantity demanded is calculated as (change in quantity) / ((original quantity + new quantity) / 2) × 100.

For price, this is ($5.00) / (($27.50 + $22.50) / 2) × 100, and for quantity, it is (10 pairs) / ((15 pairs + 25 pairs) / 2) × 100. The resulting elasticity of demand will indicate whether the demand is elastic, inelastic, or has unitary elasticity at this price level.