Suppose that the demand curve for coffee is given by the equation P = 10 - 2Q.Calculate the price elasticity of demand when the price,P,is $6.

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is (% change in quantity demanded)/(% change in price). To calculate this, we need to know the initial quantity demanded at a price of $6:
P = 10 - 2Q
$6 = 10 - 2Q
2Q = 4
Q = 2
Next, we need to determine the quantity demanded at a slightly lower price, such as $5:
P = 10 - 2Q
$5 = 10 - 2Q
2Q = 5
Q = 2.5
Now we can calculate the percentage change in quantity demanded:
((2.5-2)/2) * 100 = 25%
To calculate the percentage change in price, we subtract the new price from the old price, divide by the old price, and multiply by 100:
((6-5)/6) * 100 = 16.7%
Finally, we plug the values into the price elasticity of demand formula:
(25%)/(-16.7%) = -1.5
Since the answer is negative, we take the absolute value to get 1.5. Therefore, the price elasticity of demand is 1.5 when the price is $6.

Suppose That the Demand Curve for Coffee Is Given by the Equation