1. Compute the price elasticity of demand for paint and show your calculations.
Price Elasticity of Demand (PEoD)
= (% CHANGE IN QUANTITY DEMANDED) / (% CHANGE IN PRICE)
Price Quantity Demanded
$3.50 20 Gallons
$3.00 35 Gallons
PRICE OLD = $3.00
PRICE NEW = $3.50
Q DEMAND OLD = 35 GALLONS
Q DEMAND NEW = 20 GALLONS
Quantity demand = [QDEMAND (NEW) - QDEMAND (OLD)] / QDEMAND (OLD)
= [(20 - 35) / 35] = -0.4285
Change in quantity demanded equals -42.85%
Change in price = [PRICE (NEW) - PRICE (OLD)] / PRICE (OLD)
= [(3.50 -3.00) / 3.00] = 0.1666
Change in price equals 16.66%
PEoD = (% Change in Quantity Demanded) / (% Change in Price)
= (-42.85) / (16.66)
Price elasticity = absolute value only
Therefore the price elasticity of demand when the price increases from $3.00 to $3.50 the solution is 2.5720.
2. Decide whether the demand for paint is elastic, unitary elastic, or inelastic.
• If PEoD > 1 then Demand is Price Elastic (Demand is sensitive to price changes)
• If PEoD = 1 then Demand is Unit Elastic
• If PEoD < 1 then Demand is Price Inelastic (Demand is not sensitive to price changes)
Elastic, demand is very sensitive to price changes.
1) You are estimating the cost of optical sensors based on the resolution of the sensor. You decide to calculate the coefficient of determination (R2) as part of determining the goodness of fit of an equation. Using the preliminary calculations below, calculate the R2 and determine its meaning.
The expert estimates the cost of optical sensors based on the resolution of the sensor.