Question

The​ short-term demand for crude oil in Country A in 2008 can be approximated by q equals f (p )equals 2,067,542p ^.04 where p represents the price of crude oil in dollars per barrel and q represents the per capita consumption of crude oil. Calculate and interpret the elasticity of demand when the price is ​$69 per barrel.

Answer 1

Elasticity of demand = 190.44

Elasticity of demand is Elastic

Step-by-step explanation:

Demand ( q ) = f(p) = 2,067,542 p^0.04

price per barrel ( p ) = $69

Determine the elasticity of demand

∴ f (69) = 2,067,542 * (69)^0.04 = 2449110.07

q = 2449110.07

dq / dp = 82701.68 p^1.04

∴ ( dq/dp) = 82701.68*(69)^1.04 = 6,759,543.80

at p = 69

elasticity of demand = p/q ( dq/ dp )

= 69 / 2449110.07 * ( 6,759,543.80 )

= 190.44

magnitude of elasticity of demand | 190.44 | > 1

hence the elasticity of demand is Elastic