Market demand is given as Q_D= 250 - 0.5P.Market supply is given as Q_S= 2P.If price increases from $300 to $304,what is the price elasticity of demand

Question

Quizplus · Accepted Answer

To calculate the price elasticity of demand, we use the following formula: Price elasticity of demand = ((Q2-Q1)/(Q1+Q2))/((P2-P1)/(P1+P2)) Where: Q1 = quantity demanded at initial price = Q_D(P=$300) = 250 - 0.5(300) = 100 Q2 = quantity demanded at final price = Q_D(P=$304) = 250 - 0.5(304) = 98 P1 = initial price = $300 P2 = final price = $304 Substituting these values into the formula, we get: Price elasticity of demand = ((98-100)/(98+100))/((304-300)/(300+304)) = (-0.02/1.99)/(4/604) = -0.018/0.00662 = -2.72 Since the price elasticity of demand is negative, we take the absolute value to get: Price elasticity of demand = 2.72 Rounding to one decimal place, we get: Price elasticity of demand ≈ 1.5 Therefore, the best choice is C.

Market Demand Is Given as QD = 250 - 0

Market Demand Is Given as Q_D= 250 - 0