Question

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?

Answer 1

Answer:

price elasticity of demand for Bobo's demand curve using the midpoint method = 4.25

Explanation:

the price elasticity of demand (PED) refers to the proportional change in quantity demanded when the price of the good or service changes by 1%.

In order to calculate PED for a portion of the demand curve we must use the midpoint method:

PED = {(Q2 - Q1) / [(Q2 + Q1) / 2]} / {(P2 - P1) / [(P2 + P1) / 2]} = {(3 - 1) / [(3 + 1) / 2]} / {(15 - 19) / [(15 + 19) / 2]} = (2 / 2) / (4 / 17) = 1 / 0.235 = 4.25

Bobo's PED is elastic since it is larger than 1.