Explain why the choice between 1, 2, 3, 4, 5, 6, 7, and 8 “units,” or 1,000, 2,000, 3,000, 4,000, 5,000, 6,000, 7,000, and 8,000 movie tickets, makes no difference in determining elasticity in Table 6.1. LO6.1
Explanation of Solution
Price elasticity of demand can be calculated by using the below formula:
Price elasticity of demand for changing 1 unit to 2 units can be calculated by substituting the respective values in equation (1).
Price elasticity of demand for changing the quantity from 1 to 2 is 5 (ignore the sign).
Table -1 shows the price elasticity for the demand for changing quantity from one unit to other units that was obtained by using equation (1).
Table -1
Quantity in units | Price | Elasticity |
1 | 8 | |
2 | 7 | 5 |
3 | 6 | 2.6 |
4 | 5 | 1.57 |
5 | 4 | 1 |
6 | 3 | 0.64 |
7 | 2 | 0.38 |
8 | 1 | 0.26 |
Table-2 shows the price elasticity for the demand for changing quantity from one unit to other units that was obtained by using equation (1).
Table -2
Quantity (Actual) | Price | Elasticity |
1,000 | 8 | |
2,000 | 7 | 5 |
3,000 | 6 | 2.6 |
4,000 | 5 | 1.57 |
5,000 | 4 | 1 |
6,000 | 3 | 0.64 |
7,000 | 2 | 0.38 |
8,000 | 1 | 0.26 |
Table-1 and Table-2 clearly show that the elasticity of demand is the same regardless of the demand quantity in units or quantity demand in actual numbers. Thus, it makes no difference in determining price elasticity of demand for both the cases.
Concept introduction:
Price elasticity of demand: Price elasticity of demand is defined as the percentage change in the quantity demanded due to percentage change in price. In other words, price elasticity of demand represents the relationship between change in quantity of a specific good and the price change.
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Chapter 6 Solutions
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