# the arc elasticity of demand

Suppose the price of apples rises from $3 a pound to $3.45 and your consumption of apples drops from 30 pounds of apples a month to 21 pounds of apples. Calculate your price elasticity of demand of apples. What can you say about your price elasticity of demand of apples? Is it Elastic, Inelastic, or Unitary Elastic? Be sure to show the work you used to support your answer.

Again, since you are given numbers in this assignment, use those numbers to solve for your answer. (This is true for all assignments. Whenever you are given numbers, use those numbers in your calculations and in solving for the final answer. You want to be as specific as possible.) Price elasticity of demand is one of the harder concepts in this class. We will more than likely cover elasticity and an example in the second chat of this unit. Make sure you read all of chapter 5. Elasticity is a concept applied to supply and demand, so if you do not have a good feel for the information in chapter 4, I suggest you get a handle on that first. Then the application of elasticity may be a bit easier to understand. You may use either the midpoint formula or the simple formula (using the first data point given as your reference point which would be the price of $3 and the quantity of 30 pounds in this assignment) to compute the elasticity of demand. Make sure you provide the actual coefficient of elasticity since that is what the question is asking for. Beyond just answering the second question ("Is it Elastic, Inelastic, or Unit Elastic?"), give some reasons why. Think about the factors that make demand more or less elastic and apply them to this specific good in the assignment. Remember, it is the demand for the good that is elastic or inelastic. The good itself is not what is elastic or inelastic. Also, make sure you continue to use the correct terms when considering changes in price or changes in some other factors when talking about a change in quantity demanded or a change in demand. The second chat from the first unit stresses this difference.

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#### Solution Preview

Please note that in case of this problem we need to find the arc elasticity of demand. To be rigorous you need to use the mid-point formulae.

You have been given two figures $3 and $3.45 for the price of apples, so the mid point is 322.5 cents. Also the distance of ...

#### Solution Summary

Determine find the arc elasticity of demand.

Calculating Arc Elasticity of Demand and Optimal Price

Please help with the following problem:

Stinging Pesticides, Inc., provides scorpion control services, to residential and business customers in the El Paso area. The company recently raised its service price from $70 to $80 per annual treatment. As a result, sales fell to 37,500 from 52,500 treatments in the year earlier period.

A. Calculate the arc price elasticity of demand for SPI service.

B. Assume that the arc price elasticity (from Part A) is the best available estimate of the point price elasticity of demand. If marginal cost is $48 per unit for labor and materials, calculate SPI's optimal markup on price and its optimal price.