Question: Solve for price elasticity of demand, then determine if the good is el

Question

Question: Solve for price elasticity of demand, then determine if the good is elastic or inelastic. So.. Price Elasticity of Demand Activity Graded Assignment Due by: 9/24/2018 11:59 PM CDT 10 Max Points For the following scenarios, first solve for price elasticity of demand, then determine if the good is elastic or inelastic. a) If the price of sweaters increases by 10%, the quantity demand decreases by 13.5%. b) The original price of yoga pants was $25.00, and 1,000 pairs were sold. The price then increased to $30.00, and the number of pairs sold decreased to 800. Use the midpoint formula to solve.

Explanation / Answer

A)If the price of Sweaters increases by 10%, the quantity demand decreases by 13.5%

Answer: As per the question price of Sweaters increases by 10%, it means Percentage change in price is 10%

The quantity demand decreases by 13.5%, it means the percentage change in quantity is 13.5%

The increase in price of Sweaters caused in decrease in quantity demand of it, it states an inverse relationship between price of Sweaters and its quantity demanded so it is a normal good.

As per percentage method

Price Elasticity (Ep) of demand = Percentage change in quantity / Percentage change in Pirce

Price Elasticity (Ep) of demand = 13.5/ 10 = 1.35

So Price Elasticity (Ep) of demand = 1.35

Here Ep > 1 So the degree of price elasticity of demand is more elastic or elastic

B)The original price of Yoga pants was $25.00 and 1,000 pairs were sold. The price then increased to $30.00 and the number of pairs sold decreased to 800. Use the midpoint formula to solve.

Answer:

If (P) refers to price of yoga pants and (Q) refers to quantity of yoga pants, the given information in the question can be categorised as

P1= $25                                                                Q1= 1000

P2= $30                                                                Q2=800

P=P2-P1=30-25=5                         Q=Q2-Q1=800 – 1000 =-200

As per the Mid-point method

Ep=Q/P x (P1+P2)/(Q1+Q2)

Ep=-200/5 x (25+30)/(1000+800)

Ep=-200/5 x (55)/(1800)

Ep=-1.22

In economics it is by measuring price elasticity of demand, negative sign of price elasticity shows normal good.

The degree of price elasticity of demand of yoga pants is Ep=1.22, here the Ep>1 so it is more elastic or elastic.

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