At Price \(=\$ \mathrm{q}\), quantity demanded, \(\mathrm{Q}_{\mathrm{D}}=11 .\) At Price \(=\) \(\$ 11, \mathrm{QD}=9\). Find the elasticity of demand using a) \(\mathrm{P}=9, \mathrm{Q}_{\mathrm{D}}=11\) as a base b) \(\mathrm{P}=11, \mathrm{Q}_{\mathrm{D}}=9\) as a base c) average values as a base.

Short Answer

Expert verified
The elasticity of demand using: a) \(P = \$9\), \(QD = 11\) as a base is \(\frac{9}{11}\). b) \(P = \$11\), \(QD = 9\) as a base is \(\frac{11}{9}\). c) Average values as a base is \(1\).

Step by step solution

01

Calculate Percentage Changes

To compute elasticity of demand, we need the percentage change in quantity demanded and percentage change in price for each case (a, b and, c). a) Using \(P = \$9\) and \(QD = 11\) as a base: - Percentage change in Quantity Demanded \(= \frac{11 - 9}{11} \times 100 = \frac{2}{11} \times 100\) - Percentage change in Price \(= \frac{11 - 9}{9} \times 100 = \frac{2}{9} \times 100\) b) Using \(P = \$11\) and \(QD = 9\) as a base: - Percentage change in Quantity Demanded \(= \frac{9 - 11}{9} \times 100 = \frac{-2}{9} \times 100\) - Percentage change in Price \(= \frac{9 - 11}{11} \times 100 = \frac{-2}{11} \times 100\) c) Using average values as a base: - Average Price \(= \frac{9 + 11}{2} = \$10\) - Average Quantity Demanded \(= \frac{9 + 11}{2} = 10\) - Percentage change in Quantity Demanded \(= \frac{11 - 9}{10} \times 100 = \frac{2}{10} \times 100\) - Percentage change in Price \(= \frac{11 - 9}{10} \times 100 = \frac{2}{10} \times 100\)
02

Calculate the Elasticity of Demand for Each Base

Now, we can calculate the elasticity of demand for each case (a, b, and c) using the percentage changes we calculated in step 1: a) \(E = \frac{(\frac{2}{11} \times 100)}{(\frac{2}{9} \times 100)}= \frac{\frac{2}{11}}{\frac{2}{9}}\) b) \(E = \frac{(\frac{-2}{9} \times 100)}{(\frac{-2}{11} \times 100)}= \frac{\frac{-2}{9}}{\frac{-2}{11}}\) c) \(E = \frac{(\frac{2}{10} \times 100)}{(\frac{2}{10} \times 100)}= \frac{\frac{2}{10}}{\frac{2}{10}}\)
03

Simplify the Elasticity Values

Finally, we simplify the elasticity values we calculated in step 2: a) Elasticity of demand using \(P = \$9\) and \(QD = 11\) as a base: \(E = \frac{2}{11} \times \frac{9}{2} = \frac{9}{11}\) b) Elasticity of demand using \(P = \$11\) and \(QD = 9\) as a base: \(E = \frac{-2}{9} \times \frac{11}{-2} = \frac{11}{9}\) c) Elasticity of demand using average values as a base: \(E = \frac{2}{10} \times \frac{10}{2} = 1\) So, the elasticity of demand using: a) \(P = \$9\), \(QD = 11\) as a base is \(\frac{9}{11}\). b) \(P = \$11\), \(QD = 9\) as a base is \(\frac{11}{9}\). c) Average values as a base is \(1\).

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Most popular questions from this chapter

Mr. Ellis sells "Buzzbee Frisbess" door-to-door. In an average month, he sells 500 frisbees at a price of \(\$ 5\) each. Next month, his company is planning an employee contest whereby if any employee sells 1,000 frisbees, he will receive an extra two weeks vacation with pay. Never one to work too hard, Mr. Ellis decides that instead of trying to push \(\$ 5\) frisbees on unwilling customers for 12 hours a day, he will maintain his normal work schedule of 8 hours each day. His strategy is to lower the price which he charges his customers. If demand elasticity, \(\mathrm{e}=-3\), what price should Mr. Ellis charge in order to sell 1000 "Buzzbee Frisbees." Use average values for \(\mathrm{P}\) and \(\mathrm{Q}\).

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