When the price of bananas is 50 cents a pound, the total demand is 100 pounds. If the price elasticity of demand for bananas is -2, what quantity would be demanded if the price rose to 60 cents a pound?

Question

Quizplus · Accepted Answer

According to the price elasticity of demand formula, percentage change in quantity demanded = price elasticity x percentage change in price.

Given, the initial price (P1) = 50 cents and final price (P2) = 60 cents; initial quantity demanded (Q1) = 100 pounds.

Now, we need to find the new quantity demanded (Q2) at P2.

Using the midpoint formula, we can calculate the percentage change in price and quantity demanded.

Percentage change in quantity demanded = (Q2-Q1)/[(Q1+Q2)/2] x 100

Given price elasticity of demand = -2

Hence, -2 = (Q2-100)/[(Q2+100)/2] / (60-50)/[(60+50)/2]

Solving the above equation, we get Q2 = 60 pounds, which is the best answer.

When the Price of Bananas Is 50 Cents a Pound