The demand function for potatoes has the quantity q = 1,000 - 10p. As the price of potatoes changes from 10A2 to 20A2, the absolute value of the price elasticity of demand for potatoes increases.

Question

Quizplus · Accepted Answer

When the price of potatoes changes from 10A2 to 20A2, the price increases by a factor of 2. Using the midpoint formula for elasticity, we get:

|E| = [(q2 - q1)/((q2 + q1)/2)] / [(p2 - p1)/((p2 + p1)/2)]
|E| = [(1000 - 10(20A2))/((1000 - 10(20A2) + (1000 - 10(10A2)))/2)] / [(20A2 - 10A2)/((20A2 + 10A2)/2)]
|E| = [(600A2)/1000] / [(10A2)/15A2]
|E| = 9/5

Since the absolute value of 9/5 is greater than 1, this means that the demand for potatoes is elastic. Since the elasticity increased as the price increased, this means that the absolute value of the price elasticity of demand increased as the price increased. Therefore, the statement is true and the answer is A.

The Demand Function for Potatoes Has the Quantity Q =