Question

If the price elasticity of demand for used cars priced between $4,000 and $6,000 is -0.9 (using the mid-point method), what will be the percent change in quantity demanded when the price of a used car falls from $6,000 to $4,000

Answer 1

Answer: 36% increase in quantity demanded.

Explanation:

Price Elasticity shows the change in quantity demanded when there is a change in price.

Change in Quantity demanded = Price elasticity * Change in price.

Change in price using midpoint formula;

$= \frac{New price - Old Price}{\frac{New Price + Old Price }{2} } \\\\= \frac{4,000 - 6,000}{\frac{4,000 + 6,000 }{2} } \\\\= \frac{-2,000}{5,000} \\\\= -0.4$

Change in Quantity demanded = -0.9 * -0.4

= 0.36

= 36% increase