Calculating the own price elasticity of demand
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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 Summary
Solution describes the steps to calculate price elasticity of demand.
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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. ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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