Question

Suppose the market for orange juice is in equilibrium at a price of $2.00 per bottle and a quantity of 4200 bottles per month. Now suppose that at a price of $3.00 per bottle, quantity demanded falls to 3000 bottles per month and quantity supplied increases to 4500 bottles per month

Answer 1

Answer:

Price elasticity of demand = 1.2

Explanation:

Given:

Old price (P0) = $2

New Price (P1) = $3

Old quantity (Q0) = 4,200

New quantity (Q1) = 3,000

Price elasticity of demand = ?

Computation of Price elasticity of demand :

Price elasticity of demand = % change in quantity / % change in price

Price elasticity of demand = [(4,200-3,000)/3,000] / [(3-2)/3]

Price elasticity of demand = 1.2