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Calculating the own price elasticity of demand

The demand schedule for the product 'xyz' is given below:

Price($) Quantity demanded
3 20
4 15
5 11
6 9
7 7

Task: Based on the above data, solve the questions given below:

Compute the point price elasticity of demand for an increase in the price from $5 to $6.
Compute the point price elasticity of demand for a decrease in the price from $6 to $5.
Why does the magnitude of price elasticity differ in a and b above, although the same set of price-quantity combinations are used to compute the price elasticity of demand? Is their an alternative method that can be used?

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Solution Preview

1. Compute the point price elasticity of demand for an increase in the price from $5 to $6.
% change in price=(P2-P1)/P1=(6-5)/5 =20.00%
% change in quantity demanded=(Q2-Q1)/Q1=(9-11)/11=-18.18%
Price elasticity of demand=% change in Quantity demanded/% change in price= (-18.18%)/20.00% =-0.91

2. Compute the point price elasticity of demand for a decrease in the price from $6 to $5. ...

Solution Summary

Solution describes the steps to calculate price elasticity of demand.

$2.19