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Chapter 5: Q.33 (page 131)

The equation for a demand curve is P = 48 – 3Q. What is the elasticity in moving from a quantity of 5 to a quantity of 6?

Short Answer

Expert verified

The price elasticity of demand is 1.91

Step by step solution

01

Definition

The elasticity of Demand: Elasticity refers to the responsiveness of the quantity required by consumers in response to variations in the price of the good. Elastic demand is defined as demand that is larger than one, whereas inelastic demand is defined as demand that is less than one.

02

Explanation

The demand curve is: P = 483Q

AtQ=5,P=48-15=33AtQ=6,P=48-18=30

The quantity demanded reduces as the price rises. Let's use the average formula to calculate price elasticity:

% change in quantity=Qfinal-QintialAveragequantity×100%

% Change in quantity =6-55.5×100%=18.18%

% Change in price =Pfinal-PintialAverageprice×100%

=30-3331.5×100%=-9.52%

% Price elasticity of demand =

%changeinquantity%changeinprice=-18.189.52=-1.91

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Most popular questions from this chapter

Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company’s product at the current price is 1.4, would you advise the company to raise the price, lower the price, or keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.

Why is the supply curve with constant unitary elasticity a straight line?

From the data in Table 5.6 about the supply of alarm clocks, calculate the price elasticity of supply from point J to point K, point L to point M, and point N to point P. Classify the elasticity at each point as elastic, inelastic, or unit elastic.

If supply is inelastic, will shifts in demand have a larger effect on equilibrium price or on quantity?

Suppose the cross-price elasticity of apples with respect to the price of oranges is 0.4, and the price of oranges falls by 3%. What will happen to the demand for apples?
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