Question

14 If the slope of the demand curve is –2, price is $5 and quantity demanded is 10 units, then the price elasticity of demand is:

Answer 1

Price elasticity of demand = Percentage change in Quantity/Percentage change in Price = (Change in Quantity/Quantity)/(Change in Price/Price)

For a linear demand function, Q = a-bP, -b is the slope, which is the ratio of fall in quantity to the rise in price, or (change in quantity/change in price) or .

As a result we can write,

Price elasticity of Demand = -b (p/Q) = (slope of demand curve)x(Price/Quantity)

On Substituting values given in the question, we have:

Price elasticity of demand = -2x5/10= -1.