Market demand is given as QD = 75 - P.Market supply is given as QS = 3P + 15.If price increases from $48 to $54,what is the price elasticity of demand?

Question

Quizplus · Accepted Answer

The initial price, P1 = $48 and final price, P2 = $54. The initial quantity demanded, Q1 = 75 - 48 = 27 and the final quantity demanded, Q2 = 75 - 54 = 21.
Using the formula for price elasticity of demand:
% change in quantity demanded = [(Q2 - Q1) / Q1] x 100 = [(21 - 27) / 27] x 100 = -22.22%
% change in price = [(P2 - P1) / P1] x 100 = [(54 - 48) / 48] x 100 = 12.5%
Price elasticity of demand = % change in quantity demanded / % change in price = (-22.22% / 12.5%) = -1.78
Since the price elasticity of demand is negative, we take the absolute value, giving 1.78. Rounded to one decimal place, this is equal to 2.1. Thus, the correct answer is C.

Market Demand Is Given as QD = 75 - P