The data below represent a demand schedule.

Product price Quantity demanded
40 10
35 15
30 20
25 25
20 30

Determine the price elasticity of demand between each of the following prices:

a. Between P1 = $40 and P2 = $35, Ed =
b. Between P1 = $35 and P2 = $30, Ed =
c. Between P1 = $30 and P2 = $25, Ed =
d. Between P1 = $25 and P2 = $20, Ed =

a. 5 (relatively elastic demand)

b. 2.33 (relatively elastic demand)

c. 1.50 (relatively elastic demand)

d. 1 (unitary elasticity demand)

Explanation:

P=price. QD=quantity demand

a. P1=40 QD1=10

P2=35 QD2=15

Price elasticity demand = (%change in QD ) ÷ (%change in P)

% change in QD= (Qd2-Qd1) ÷Qd1 ×100

(15-10) ÷10 =( 5÷10) ×100

=50%

%change in price =( P2-P1) ÷ P1 ×100

( 35-40) /40 ×100

=10%

Price elasticity of demand for question a. = 50% ÷ 10% = 5

b. P1=35. QD=15

P2=30. QD=20

Price elasticity demand = (%change in QD) ÷ (%change in P)

% change in QD= (Qd2-Qd1) ÷Qd1 ×100

(20-15) ÷15 =( 5÷15) ×100

=33.33%

%change in price =( P2-P1) ÷ P1 ×100

( 30-35) /35 ×100

=14.29%

Price elasticity of demand for question b.

= 33.33% ÷ 14.29%

=2.33

c. P1=30. QD=20

P2=25. QD=25

Price elasticity demand = (%change in QD) ÷ (%change in P)

% change in QD= (Qd2-Qd1) ÷Qd1 ×100

(25-20) ÷20 =( 5÷20) ×100

=25%

%change in price =( P2-P1) ÷ P1 ×100

(25-30) /30 ×100

=16.67%

Price elasticity of demand for question b.

= 25% ÷ 16.67%

=1.50

d. P1=25. QD=25

P2=20. QD=30

Price elasticity demand = (%change in QD) ÷ (%change in P)

% change in QD= (Qd2-Qd1) ÷Qd1 ×100

(30-25) ÷25 =( 5÷25) ×100

=20%

%change in price =( P2-P1) ÷ P1 ×100

( 20-25) /25 ×100

=20%

Price elasticity of demand for question b.

= 20% ÷ 20%

=1.00

Note : negative signs are neglected when calculating price elasticity.

a a car

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