Scenario 5.1
The demand for noodles is given by the following equation: Q = 20 - 4P + 0.2I - 2P x . Assume that P = $8, I = 200, and P x = $10.
-Assume that as the price of wheat falls from $10 to $8, the quantity demanded of wheat increases from 100 bushels to 150 bushels. This implies the price elasticity of demand for wheat is 0.5.

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated using the formula: $E_d = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}$. Given the change in price from $10 to $8 (a decrease of 20%) and the change in quantity demanded from 100 to 150 bushels (an increase of 50%), the price elasticity of demand for wheat would be $E_d = \frac{50\%}{-20\%} = -2.5$, not 0.5.

Scenario 5.1 The Demand for Noodles Is Given by the Following Equation