The demand function for small business computers in the United States is given by x = 200 - 10p, where x is annual sales measured in thousands of computers and p is the price of a computer measured in thousands of dollars. Japanese firms supply a big share of these computers. They measure prices in yen where 150 yen equal 1 dollar. The price of 1 computer is $10,000. Let E_u be the price elasticity of demand at this price as calculated by US firms who measure in dollars, and let E_j be the price elasticity of demand at the same $10,000 price but measured in yen by the Japanese firms. Which of the following are the values of E_u and E_j, respectively?

Question

Quizplus · Accepted Answer

The price elasticity of demand (E) is calculated as E = (dx/dp) * (p/x). For US firms, E_u = -10 * (10/100) = -1. For Japanese firms, the price in yen is 10,000 * 150 = 1,500,000 yen, so E_j = -10 * (1,500,000/100) = -1 * 150 = -150. However, the correct conversion factor for elasticity is 1/150, so E_j = -1 * 150/150 = -1. The correct answer is B, where E_u = -1 and E_j = 21.

The Demand Function for Small Business Computers in the United