Question

If Samsung cuts the price of its 1 terabyte USB flash drive from $120 to $90 and, as a result, its daily quantity demanded goes up from 32,000 to 48,000 units, then what would be the price elasticity of demand for this product? Provide the full interpretation of this calculated price elasticity of demand coefficient from consumer and economic standpoints.

Answer 1

Answer : P (Changes in price) = P2 - P1 = 90 - 120 = - 30

Q (Changes in quantity) = Q2 - Q1 = 48000 - 32000 = 16000

Here P1 (old price) = $120 and Q1 (old quantity) = 32,000

P2 (new price) = $90 and Q2 (new quantity) = 48,000

Price elasticity of demand (||Ep||) = (Q / P) * (P1 / Q1)

=> ||Ep|| = [16000 / (- 30)] * (120 / 32000)

=> ||Ep|| = 2

Therefore, here the price elasticity of demand is 2. As here the price elasticity of demand is greater than 1 hence the demand is elastic.