Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand?

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated using the formula: |(ΔQ/Q_avg) / (ΔP/P_avg)|, where ΔQ is the change in quantity, Q_avg is the average quantity, ΔP is the change in price, and P_avg is the average price. Here, ΔQ = 240 - 800 = -560 tons, Q_avg = (240 + 800) / 2 = 520 tons, ΔP = $180 - $120 = $60, and P_avg = ($180 + $120) / 2 = $150. Plugging these into the formula gives |(-560 / 520) / (60 / 150)| = |(-1.08) / (0.4)| = 2.69.

Suppose a Hurricane Decreased the Supply of Oranges So That