Question

In​ 1916, the Ford Motor Company sold​ 500,000 Model T Fords at a price of​ $440. Henry Ford believed that he could increase sales of the Model T by​ 1,000 cars for every dollar he cut the price. Use this information to calculate the price elasticity of demand.

Answer 1

The price elasticity of demand for Model T Fords is 0.8781

Step-by-step explanation:

Henry is of the belief that if the price of Model T Fords decrease by $1 to $439 the demand will increase by 1000 cars giving new demand figure of 501000 cars

The formula for price elasticity of demand is given as:

ED=(-)(Q2-Q1/Q2+Q1)/2)/(P2-P1/P2+P1)/2

P1=$440 P2=$439

Q1=500000 Q2=501000

ED=(-)(501000-500000/501000+500000)/2)/(440-439/440+439)/2

ED=-1000/500500*439/1

ED=0.8781