Question

Suppose that in a week the price of ground beef decreases from $5.00 to $4.00 per pound. At the same time, the quantity of ground beef demanded at a typical grocery store increases from 9,000 to 12,000 pounds per month. What is the price elasticity of demand for ground beef?

Answer 1

Answer:

The price elasticity of ground beef is -1.65.

Explanation:

At the price level, $5 the quantity demanded is 9,000.

A decline in the price to $4 leads to an increase in the quantity demanded at 12,000.

The price elasticity of demand will be

= $\frac{Change\ in\ quantity\ demanded}{Change\ in\ price}$

= $\frac{\frac{Q2-Q1}{Q1} }{\frac{P2-P1}{P1} }$

= $\frac{\frac{12,000-9,000}{9,000} }{\frac{4-5}{5} }$

= $\frac{\frac{3,000}{9,000} }{\frac{-1}{5} }$

= $\frac{0.33}{-0.2}$

= -1.65