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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

The equation for a demand curve is Chapter 5, Problem 34P, The equation for a demand curve is What is the elasticity of demand as price falls from 5 to 4? What What is the elasticity of demand as price falls from 5 to 4? What is the elasticity of demand as the price falls from 9 to 8? Would you expect these answers to be the same?

To determine

Calculate the elasticity of demand for the following demand function when price falls from 5 to 4 and 9 to 8. Also tell is the answer same for both cases?

P =2Q.

Explanation

We will first find the quantity demanded at price $5

P = 2Q5 = 2QQ = 0.40Q = 0.40 units at P = $5

Now, we will find quantity demanded at price $4

P = 2Q4 = 2QQ = 0.50Q = 0.50 units at P = $4

Now, we can calculate the elasticity of demand with the following formula:

e = ΔQΔP×PQ

e = 0.500.4054×50.40e = 0.101×50.40e = 1.25

Therefore, the elasticity of demand is 1.25 when price falls from $5 to $4.

Now we will calculate the elasticity of demand when price falls from $9 to $8.

We will first find the quantity demanded at price $9

P = 2Q9 = 2QQ = 0

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