Question

The demand for airline tickets to Hawaii is: P = 1800 – 30Q. Compute the elasticity of demand when Q = 1, Q=2 and Q=4. Look at the formula you will use and figure out a strategy to use Excel as a tool to do these three computations efficiently. Copy and paste your spreadsheet on this page, using “show formulas”.Copy and paste your spreadsheet on this page, showing the numbers.Draw a diagram of the demand line. Mark the points at which Q=1, Q=2, and Q=3. At those points, mark the three elasticities you computed.Describe the pattern you see. Do you see the same pattern we noted in class?

Answer 1

Q	P=1800-30*Q	%change in P	%change in Qd	Ed= % change in Qd/%change in P
0	=1800-30*A2
1	=1800-30*A3	=(B3-B2)/B2	1	=D3/C3
2	=1800-30*A4	=(B4-B3)/B3	=(A4-A3)/A3	=D4/C4
4	=1800-30*A5	=(B5-B4)/B4	=(A5-A4)/A4	=D5/C5

Q	P=1800-30*Q	%change in P	%change in Qd	Ed
0	1800
1	1770	-0.02	1.00	-60.00
2	1740	-0.02	1.00	-59.00
4	1680	-0.03	1.00	-29.00

There is a negative linear trend with the increase in Quantity or with the decrease in price the quantity demanded increases.