Question

Suppose Hamilton decides that if the price of their blenders is $32, the quantity demanded will be 1,000 units, and if the price is $35, the quantity demanded will be 800. The price elasticity of demand for the good is approximately
a. +0.41.
b. -0.44.
c. +0.34.
d. -0.34 e. +2.44.

Answer 1

Answer:

-2.5

Explanation:

Elasticity of demand measure the responsiveness of demand against the change in price of the product. It shows how much demand changes if there is the change in price.

Change in Quantity = ( S2 - S1 ) / [ ( S2 + S1 )/2 ]

Change in Quantity = ( 800 - 1,000 ) / [ ( 800 + 1,000 )/2 ]

Change in Quantity = -200 / 900

Change in Quantity = -0.2222222

Change in price = ( P2 - P1 ) / [ ( P2 + P1 )/2 ]

Change in price = ( $35 - $32 ) / [ ( $35 + $32 )/2 ]

Change in price  = $3 / $33.5

Change in price  = 0.090

Elasticity of Supply = Change in Quantity / Change in Price

Elasticity of Supply = -0.2222222 / 0.090 = -2.5

Elasticity of Supply = 0.597 = 0.60