Question

Suppose Hamilton decides that if the price of their blenders is $32, the quantity demanded will be 1,000 units, and if the price is $35, the quantity demanded will be 800. The price elasticity of demand for the good is approximately:_______

a. +0.41.
b. -0.44.
c. +0.34.
d. -0.34
e. +2.44.

Answer 1

-2.47

Step-by-step explanation:

Given that,

Initial quantity demanded = 1,000 units

Initial price = $32

New quantity demanded = 800

New price = $35

Here, we are using mid point method,

Average price:

= (Initial price + New price) ÷ 2

= ($32 + $35) ÷ 2

= $33.5

Average quantity demanded:

= (Initial quantity demanded + New quantity demanded) ÷ 2

= (1,000 + 800) ÷ 2

= 900

Change in price:

= (New price - Initial price) ÷ Average price

= ($35 - $32) ÷ $33.5

= 0.08955

Change in quantity demanded:

= (New quantity demanded - Initial quantity demanded) ÷ Average quantity demanded

= (800 - 1,000) ÷ 900

= -0.2222

Therefore, the price elasticity of demand is as follows:

= Change in quantity demanded ÷ Change in price

= 0.2222 ÷ 0.0896

= -2.47