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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

From the data in Table 5.5 about demand for smart phones, calculate the price elasticity of demand from: point B to point C, point D to point E, and point G to point H. Classify the elasticity at each point as elastic, inelastic, or unit elastic.

Chapter 5, Problem 1SCQ, From the data in Table 5.5 about demand for smart phones, calculate the price elasticity of demand

To determine

Calculate the elasticity of demand at various points on the demand curve and classify them as inelastic, unit elastic and elastic.

Answer

Price elasticity of demand from point B to C is 0.5

The price elasticity of demand at point D to E is 0.75

The price elasticity of demand at point G to H is 1.32.

Explanation

Let’s calculate the price elasticity of demand from point B to C:

e = ΔQΔP×PQe = 2,6002,8008070×702,800e = 20010×0.025e = (-) -20 ×0.025e = 0.5

Therefore, the price elasticity of demand from point B to C is 0.5. Since the elasticity of demand is less than 1, the demand is inelastic, which means there is less change in quantity demanded as compared to the change in price level.

Now, we find out the price elasticity of demand at point D to E:

e = ΔQΔP×PQe = 2,2002,40010090×902,400e = 20010×0.0375e = (-) -20 ×0.0375e = 0.75

Therefore, the price elasticity of demand from point D to E is 0.75. Since the elasticity of demand is less than 1, the demand is inelastic, which means there is less change in quantity demanded as compared to the change in price level.

Now, we find out the price elasticity of demand at point G to H:

e = ΔQΔP×PQe = 1,6001,800130120×1201,800e = 20010×0.066e = (-) -20 ×0.066e = 1.32

Therefore, the price elasticity of demand from point G to H is 1.32, since the elasticity of demand is greater than 1; the demand is elastic, which means there is large change in quantity demanded as compared to the change in price level.

Concept

Price elasticity of demand: The degree of responsiveness to change in quantity demanded due to change in its price. The formula for calculating elasticity of demand is as follows:

e = ΔQΔP×PQ

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