Share
Explore BrainMass

# Price Elasticity of demand

The document file (price elasticity of demand formula sheet) is to answer many questions about how to calculate the Ed and how to interpret the answers.

#### Solution Preview

See the attached files.

Elasticity
(Answers should not be too short and focus What is the connection between elasticity, the demand curve, and the total revenue curve.)
1. Graph the following date: See attachment "Question 1."
P 75 60 45 30 15 0
Qd 0 5 10 15 20 25

2. Calculate the Ed using the point formula as P drops from 75 to 60, then from 60 to 45, then 45 to 30, then 30 to 15, then 15 to 0. That is 5 separate calculations. Show your work and list your answers in decimal format, carrying out all answers to decimal places.

[(5-0/0]/[(60-75)/75] = undefined, but approaches infinity (perfectly elastic);
[(10-5)/5]/[(45-60)/60] = 4;
[(15-10)/10]/[(30-45)/45] = 1.5;
[(20-15)/15]/[(15-30)/30] = 0.67;
[(25-20)/20]/[(0-15)/15] = 0.25

3. Then, do the same thing as above in # 2, except use the mid point formula.
Price elasticity of demand = [(Q2-Q1)/(Q1+Q2)]x[(P1+P2)/(P2-P1)]
[(5-0)/(0+5)]x[(75+60)/(60-75)] = 9;
[(10-5)/(5+10)]x[(60+45)/(45-60)] = 2.33;
[(15-10)/(10+15)]x[(45+30)/(30-45)] = 1;
[(20-15)/(15+20)]x[(30+15)/(15-30)] = 0.429;
[(25-20)/(20+25)]x[(15+0)/(0-15)] = 0.111

4. ...

#### Solution Summary

Price elasticity of demand is exhibited in the solution.

\$2.19