c. The elasticity of demand for D 3 between points e and f is 1.00. Instructions
ID: 1225848 • Letter: C
Question
c. The elasticity of demand for D3 between points e and f is 1.00.
Instructions: Round your answer to 2 decimal places. Enter a positive value (absolute value).
Given the shift in demand, the elasticity between points e' and f' in Figure c =
d. In terms of the midpoint formula, what explains the change in elasticities? If we compare the elasticities in this problem to those found in the orignal demand curves, an increase in quantity at every price increases/reduces the elasticity. The percentage change in quantity is smaller/larger given the higher quantity purchased at every price.
Explanation / Answer
(a) Answer to blank 1: 1.29
Explanation:
PED = Q/P *( P1 + P2 /Q1 + Q2)
= (50-20) / (1-2) * (1+2) / (20+50)
= (30 / 1) * (3 /70) ( minus sgn ignored)
= 1.29
(b) Answer to blank 2: 0.33
Explanation:
PED = Q/P *( P1 + P2 /Q1 + Q2)
= (30-20) / (1-4) * (1+4) / (20+30)
= (10 / 3) * (5 /50) ( minus sgn ignored)
= 0.33
(c) Answer to blank 3:
Explanation:
PED = Q/P *( P1 + P2 /Q1 + Q2)
= (40-20) / (1-3) * (1+3) / (20+40)
= (20 / 2) * (4 /60) ( minus sgn ignored)
= 0.67
(d) In the midpoint formula everything remains the same except the reference point for quantity, which increase and that increase reduces the elasticity.
If we compare the elasticities in this problem to those found in the orignal demand curves, an increase in quantity at every price reduces the elasticity. The percentage change in quantity is smaller given the higher quantity purchased at every price.
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