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OverLord2011 [107]
3 years ago
12

Calculating the price elasticity of demand - A step-by-step guide

Business
1 answer:
marysya [2.9K]3 years ago
4 0

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)

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