Question

Suppose that during the past year, the price of a laptop computer fell from $2,500 to $2,300. During the same time period, consumer sales increased from 403,000 to 549,000 laptops. Calculate the elasticity of demand between these two price-quantity combinations by using the following steps.
original new Average Change Percentage
Quantity
Price

Answer 1

Answer:

Elasticity of Demand = 4.5

Demand is very elastic, because a small percentage change in price brought about a bigger percentage change in quantity demanded.

Explanation:

Data and Calculations:

                 Original Average New Average    Change     Percentage

Quantity       403,000              549,000            +146,000    36.23%

Price            $2,500                $2,300               -$200        8%

b) Elasticity of demand:  The elasticity of demand is calculated by dividing the % change in quantity by the % change in price which brought it about.

Percentage change in Quantity/Percentage change in price

= 36.23%/8% = 4.5

c) The elasticity of demand is the responsiveness of demand (consumers) to a change in price.  If the responsiveness is less than 1, then demand is inelastic.  If it is equal to 1, then demand elasticity is unitary.  If it is more than 1, then demand is elastic.

Decision, since Elasticity is more than 1, the demand is very elastic.