Question

The price of a good increases from $75 to $100. Sales decrease from 1000 to 800.

a. Find price elasticity of ticket demand at these prices and quantities.

b. with the same elasticity calculated above, if price decreases from $75 to $50, what would be the new quantity demanded?

Answer 1

A)Price elasticity of demand= % change in quantity demanded÷ % change in price

% change in quantity demanded

=( 800-1000)÷ 1000

= -0.2 or -20%

% change in price

=( 100-75)÷ 75

= 0.333 or 33.33%

Price elasticity of demand= -20% ÷ 33% = -0.60

B) Quantity demanded=

Price elasticity of demand= % change in quantity demanded÷ % change in price

-0.60 = % change in quantity demanded÷ - 33.33%

% change in quantity demanded= 0.60 × 0.33= 0.20 or 20 %

Hence change in quantity demanded= 20%

% change in price =( 50-75) ÷ 75 = - 0.3333 or -33.33%