Question

Label demand as elastic, unit elastic, or inelastic for each scenario. Use the midpoint method when applicable to calculate the price elasticity of demand. Contain Yourself!, a plastic container company, raises the price of its signature Lunchbox container from $ 3.00 to $ 4.00 . As a result, the quantity sold drops from 20,000 to 15,000. Economists working for the United States have determined that the elasticity of demand for gasoline is 0.5 . Capital Metro decides to increase bus fare rates from $ 2.00 to $ 2.21 . Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day.

Answer 1

Answer:

The demand for signature lunchbox container is inelastic. Price elasticity of demand is -1

The demand for gasoline is inelastic. Price elasticity of demand is 0.5

The demand for bus in Austin is inelastic. Price elasticity of demand is -1.38

Explanation:

Midpoint formula for price elasticity of demand = (change in quantity demanded/average quantity demanded) ÷ (change in price/average price)

Signature lunchbox container

change in quantity demanded = 15,000 - 20,000 = -5000

average quantity demanded = (20,000 + 15,000)/2 = 35,000/2 = 17,500

-5000/17,500 = -0.286

change in price = 4 - 3 = 1

average price = 4+3/2 = 7/2 = 3.5

1/3.5 = 0.286

Price elasticity of demand = -0.286/0.286 = -1. The demand is inelastic because the price elasticity of demand is less than 1

Gasoline

Price elasticity of demand is 0.5. The demand for gasoline is inelastic because the price elasticity of demand is less than 1.

Bus in Austin

change in quantity demanded = 61,000 - 70,000 = -9,000

average quantity demanded = (70,000+61,000)/2 = 65,500

-9,000/65,500 = -0.137

change in price = 2.21 - 2 = 0.21

average price = (2+2.21)/2 = 2.105

0.21/2.105 = 0.0998

Price elasticity of demand = -0.137/0.0998 = -1.38. The demand for bus in Austin is inelastic because the price elasticity of demand is less than 1