Question

Suppose that during the past year, the price of a laptop computer rose from $2,100 to $2,550. During the same time period, consumer sales decreased from 470,000 to 363,000 laptops.
Calculate the elasticity of demand between these two price–quantity combinations by using the following steps. After each step, complete the relevant part of the table with the appropriate answers. (Note: For decreases in price or quantity, enter values in the Change column with a minus sign.)

Answer 1

Answer:

1.33

Explanation:

Step 1:
Original quantity = 470,000
New quantity = 363,000
Original price = $2,100
New price = $2,550

Step 2:
Average quantity:
= (Original quantity + New quantity) ÷ 2
= (470,000 + 363,000) ÷ 2
= 833,000 ÷ 2
= 416,500

Average price:
= (Original price + New price) ÷ 2
= ($2,100 + $2,550) ÷ 2
= $4,650 ÷ 2
= 2,325

Step 3:
change in quantity = new quantity - original quantity
                               = 363,000 - 470,000
                               = (107,000)
change in price = new price - original price
                          = $2,550 - $2,100
                          = $450

Step 4:
percentage change in quantity demanded:
= change in quantity ÷ average quantity
= (107,000) ÷ 416,500
= 0.2569 or (25.69%)

percentage change in price:
= change in price ÷ average price
= $450 ÷ 2,325
= 0.1935 or 19.35%

Step 5:
Price elasticity of demand:
= percentage change in quantity demanded ÷ percentage change in price
= 25.69 ÷ 19.35
= 1.327 or 1.33 (approx)