Question

Q= 17-2P+3P/S where P is the price of the product and Upper P Subscript Upper S is the price of a substitute good. The price of the substitute good is ​$2.40. Suppose P=​$0.60. The price elasticity of demand is

Answer 1

Answer: The Price Elasticity of demand is Inelastic at 0.05

Explanation: Elasticity of demand is the degree of responsiveness of price to quantity demanded.

Using the equation; Q= 17-2P+3P/S

Where P = $0.60; P/S = $2.40

Q = 17 - 2 (0.60) + 3 (2.40)

= 17 - 1.20 + 7.20 = 23

Price elasticity of demand at Price = $0.60 is change in price x Price/ quantity

Therefore; -2 × 0.6/23 = -0.05

Using absolute value, the Price elasticity = 0.05

This is inelastic because demand is less than 1.