Question

Label demand as elastic, unit elastic, or inelastic for each scenario. Use the midpoint method when applicable to calculate the price elasticity of demand.

Contain Yourself!, a plastic container company, raises the price of its signature Lunchbox container from $3.00$3.00 to $4.00$4.00. As a result, the quantity sold drops from 20,000 to 15,000.

Economists working for the United States have determined that the elasticity of demand for gasoline is 0.50.5.

Capital Metro decides to increase bus fare rates from $2.00$2.00 to $2.21$2.21. Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day.

Answer 1

1) a plastic container company, raises the price of its signature Lunchbox container from $3.00 to $4.00. As a result, the quantity sold drops from 20,000 to 15,000.

Price elasticity = [15000-20000/(15000+20000/2) / [4-3/(4+3/2) = [-5000/17500]/[1/3.5] = -0.2857/0.2857 =-1

so the price elasticity is unitary elastic

2) Economists working for the United States have determined that the elasticity of demand for gasoline is 0.5

As the price elasticity is less than 1 so it is inelastic.

3) Capital Metro decides to increase bus fare rates from $2.00 to $2.21. Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day.

Price elasticity = [61000-70000/(61000+70000/2)]/[2.21-2/(2.21+2/2)] = [-9000/65500] / [0.21/2.105] = -0.1374/0.099 = -1.38

As the value is greater than 1 so it is elastic