Question

The price of suntan lotion increases from \$6 to \$8 per bottle and quantity demanded decreases...

The price of suntan lotion increases from \$6 to \$8 per bottle and quantity demanded decreases from 900,000 bottles to 845,000 bottles. Use the midpoint method to calculate the price elasticity of demand for suntan lotion.

Is demand elasticity or inelastic? How do you know?

What factors might be responsible for you answer in (b) above?

price elasticity of demand=(change in quantity demanded/average quantity)/(change in price/average price)
change in quantity demanded=845000-900000=-55000
average quantity demanded=(845000+900000)/2=872500
change in price=8-6=2
average price=(8+6)/2=7

price elasticity of demand=(-55000/872500)/(2/7)
=-0.220630372
the demand is inelastic
because the elasticity is above -1
the elasticity is a measure of the responsiveness of the quantity demanded because of change in price
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the factor responsible for inelastic demand is necessary good
and
the factors responsible for the change in price is the shift in the supply curve because of increase in input price, decrease in the number of sellers, loss of product by natural disaster etc.

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