Question

In a local​ market, the monthly price of Internet access service decreases from ​$25 to ​$15, and the total quantity of monthly accounts across all Internet access providers increases from 90,000 to 190,000.

What is the value price elasticity of​ demand, expressed as a positive​ number?

Answer 1

ANSWER:

ped = % change in quantity demanded / % change in price

% change in quantity demanded = (qd2 - qd1) / (qd2 + qdi) / 2

% change in quantity demanded = (190,000 - 90,000) / (190,000 + 90,000) / 2 = 100,000 / 140,000 = 5 / 7

% change in price = (p2 - p1) / (p2 + p1) / 2

% change in price = (15 - 25) / (15 + 25) / 2 = -10 / 20 = -1 / 2

ped = 5 / 7 / -1 / 2

ped = (5 * 2) / (7 * -1)

ped = 10 / -7

ped = -1.42857

so the price elasticity of demand is 1.42857