Question

Suppose the demand curve for a product is given by the equation Q_d = 30/P. Compute the quantities demanded at prices of $1, 2, 3, 4, 5, and 6. Graph the demand curve. Use the arc method to calculate the price elasticity of demand between $1 and $2, and between $5 and $6. How does this demand curve compare to the linear demand curve?

Answer 1

	Q1	Q2	Average	Q2-Q1	% change in Q	P1	P2	Average	P2-P1	change in P	Ep
Between 1 and 2	30	15	22.5	-15	-66.66666667	1	2	1.5	1	66.66666667	-1
Between 5 and 6	6	5	5.5	-1	-18.18181818	5	6	5.5	1	18.18181818	-1

for Quantity

Average=(Q2+Q1)/2  

% change in Q=(Q2-Q1)/Average * 100

for Price

Average=(P2+P1)/2  

% change in P=(P2-P1)/Average * 100

Ep= % change in quantity/ % change in price

This demand curve is arched and hence non-linear, it is convex to the origin and downward sloping.