The demand for watches is Q = 1,000P ^-2.50I².Assume that per capita income I is $6,000.At a price P of $45, the price elasticity of demand is A)1.0. B)2.25. C) 2 D) -0.50. E)2.50.

Question

Quizplus · Accepted Answer

The price elasticity of demand is given by the formula: E = dQ/dP * (P/Q). Given Q = 1,000P^-2.50I^2, differentiate with respect to P to get dQ/dP = -2.50 * 1,000 * P^-3.50 * I^2. Substituting P = 45 and I = 6,000 into the equation, and simplifying, the elasticity is -2.50, which is the absolute value of 2.50.

The Demand for Watches Is Q = 1,000P -2

The Demand for Watches Is Q = 1,000P ^-2