Price Elasticity of Demand Essay

Published: 2020-01-20 17:00:51
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Category: Elasticity

Type of paper: Essay

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Suppose the price of apples rises from $3.50 a pound to $4.00 and your consumption of apples drops from 30 pounds of apples a month to 20 pounds of apples. Calculate your price elasticity of demand of apples. What can you say about your price elasticity of demand of apples? Is it Elastic, Inelastic, or Unitary Elastic? Be sure to show the work you used to support your answer.

 Price Elasticity of Demand = (% Change in Quantity Demanded)

(% Change in Price)

 Price(OLD)= [3.5]

Price(NEW)= [4.0]

Quantity Demand(OLD)= [30]

Quantity Demand(NEW)= [20]

 To calculate the price elasticity, we need to know what the percentage change in quantity demand is and what the percentage change in price is.

 Calculating the Percentage Change in Quantity Demanded

  [QDemand(NEW) QDemand(OLD)] / QDemand(OLD)

 [20 30] / [30] = -10 / 30] -0.33

= -0.33

(-33%)

 Calculating the Percentage Change in Price

 [Price(NEW) Price(OLD)] / Price(OLD)

  [4 3.5] / 3.5

= 0.5/3.5

= 0.143




 Price Elasticity of Demand  = (% Change in Quantity Demanded)

(% Change in Price)

PEoD = (-0.3333)/ (0.143) = -2.3308 when the price increases from $3.5 to $4 is 2.3308.

Since the price elasticity of demand is greater than 1, the demand is inelastic. i.e the demand is not sensitive to price changes.

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