Question

When the admission rate of the new Mapuan Park was ₱5 per visit, the average number of visits per person was 20 per week. Since the rate has risen to ₱6, the demand has fallen to 16 per week. (Hint: Use the Arc price elasticity formula)

What is the elasticity of demand over this range of prices? Round off to two decimal places. (5PTS)

Answer 1

The calculated elasticity of demand for the new Mapuan Park after the admission rate increased from ₱5 to ₱6 is -1.10, rounded to two decimal places. This indicates that the demand is relatively elastic over this range of prices.

Step-by-step explanation:

The elasticity of demand over this range of prices using the Arc price elasticity formula is calculated as follows:

Price Elasticity of Demand (PED) = (Percentage change in quantity demanded) / (Percentage change in price).

The percentage change in quantity demanded: ((16 - 20) / ((16 + 20)/2)) * 100 = (-20%).

The percentage change in price: ((6 - 5) / ((6 + 5)/2)) * 100 = 18.18%.

Now, by substituting these into the formula we get:

PED = (-20%) / 18.18% = -1.10.

After rounding off to two decimal places, the elasticity of demand is -1.10.

Thus, for the new Mapuan Park, when the admission rate increased, the elasticity of demand was relatively elastic since a change in price resulted in a proportionally larger change in quantity demanded.