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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?

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