The demand for space heaters is Q = 250 - P + 2COOL,where COOL is the absolute value of the difference between the average overnight low temperature and 40°F.Assume that the average overnight low this month is 40°F.When the price of space heaters is P = $50,the price elasticity of demand is:
A) -1.38.
B) -13.8.
C) -0.138.
D) -1.50.
E) -0.25.

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as (dQ/dP) * (P/Q). Given Q = 250 - P + 2COOL and COOL = 0, dQ/dP = -1. At P = $50, Q = 200. Thus, elasticity = (-1) * (50/200) = -0.25.

The Demand for Space Heaters Is Q = 250 -