Final answer:
The price elasticity of demand for peanut butter can be calculated by using the formula: Price Elasticity of Demand = % change in Quantity Demanded / % change in Price. In this case, the price of peanut butter changes from $2.00 to $0.40.
Step-by-step explanation:
The price elasticity of demand for peanut butter can be calculated by using the formula:
Price Elasticity of Demand = % change in Quantity Demanded / % change in Price
In this case, the price of peanut butter changes from $2.00 to $0.40. We can calculate the % change in Quantity Demanded by subtracting the initial quantity demanded from the final quantity demanded and dividing it by the average of the initial and final quantity demanded. Similarly, we can calculate the % change in Price by subtracting the initial price from the final price and dividing it by the average of the initial and final price.
Using the information provided, we have:
% change in Quantity Demanded = 2200 - 2400 / ((2200 + 2400) / 2)
% change in Price = $0.40 - $2.00 / (($2.00 + $0.40) / 2)
Once we have calculated both % changes, we can substitute them into the formula to find the price elasticity of demand for peanut butter.