Question

For the following demand function:

Q_d = 345 - 17P

Calculate the elasticity of demand between P₁=8 and P₂=10

Note: Round your answer to 1 decimal place (e.g., 2.2)

Note: Don't forget the negative sign -- price elasticities of demand are always negative

The price elasticity of demand can be used as a measure of:

		The per unit profits that firms make from selling their goods
		How responsive demand is to changes in income
		How much consumers like a particular good
		How much demand changes when the prices of complements and subsitutes change
		How sensitive demand is to changes in the good's own price

Answer 1

The price elasticity of demand is calculated by following formula - . (Q2 - Q1)/(P2 - P1) * (P1+P2)/(Q1+Q2) , Now when price is P1 i.e price is equal to 8 then quantity demand is : Qd = 345 - 17P, at P=8 , Qd = 209 (Q1) again at P2 (P=10) the quantity demand will be 175 and we say it Q2.

Therefore Q2-Q1 = -34 , P2-P1=2 , Q1 + Q2 = 384 , P1+P2 = 18, Now elasticity is equal to (-34/2)*(18/384) = -51/64 = - 0.7

The price elasticity of demand can be used as a measure of - How sensitive demand is to changes in the good's own price.