Market demand is given as Q_D= 220 - 4P.Market supply is given as Q_S= 2P + 40.If price increases from $50 to $53,what is the price elasticity of demand

Question

Quizplus · Accepted Answer

Elasticity of demand is calculated as:
% change in quantity demanded / % change in price

Change in price = $53 - $50 = $3
% change in price = (3/50) x 100 = 6%

At initial price of $50, quantity demanded is
220 - 4P = 220 - 4(50) = 20

At price of $53, quantity demanded is
220 - 4P = 220 - 4(53) = 8

% change in quantity demanded = ((8-20)/20) x 100 = -40%

Elasticity of demand = -40/6 = -6.67

Since elasticity of demand is negative, we take absolute value to get 6.67 which is rounded off to 14.7. Therefore, the answer is D.

Market Demand Is Given as QD = 220 - 4P

Market Demand Is Given as Q_D= 220 - 4P