The demand for textbooks is Q = 200 - P + 25U - 50P_beer.Assume that the unemployment rate U is 8 and the price of beer P_beer is $2.When the average price of a textbook is P = $100,the price elasticity of demand is: A) -1.0. B) -2.0. C) -0.5. D) -50. E) -5.0.

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Quizplus · Accepted Answer

We can use the formula for price elasticity of demand: Price elasticity of demand = % change in quantity demanded / % change in price To solve for the price elasticity of demand at a price of $100, we need to find the quantity demanded at that price and also at a slightly higher price. Let's say the slightly higher price is $101. At a price of $100, using the demand equation, we get: Q = 200 - 100 + 25(8) - 50(2)(8)(1) = 200 - 100 + 200 - 800 = -500 Note that we plugged in U = 8 and P_beer = $2. At a price of $101: Q = 200 - 101 + 25(8) - 50(2)(8)(1) = 199 - 800 = -601 The percentage change in quantity demanded is: (601 - 500) / 500 = 0.202 The percentage change in price is: (101 - 100) / 100 = 0.01 Plugging into the formula for price elasticity of demand: Price elasticity of demand = 0.202 / 0.01 = 20.2 Since this is a decrease in quantity demanded as price rises, the elasticity is negative. Also note that this is greater than 1 in absolute value, indicating an elastic demand. The closest choice is C, -0.5. Unfortunately there is no correct answer in the given options.

The Demand for Textbooks Is Q = 200 - P