Market demand is given as QD = 140 - 5P.Market supply is given as QS = 2P.If price increases from $6 to $8,what is the price elasticity of demand?

Question

Quizplus · Accepted Answer

To calculate price elasticity of demand we use the formula:

Elasticity of Demand = (% change in quantity demanded) / (% change in price)

Using the given information, we can calculate the change in price and change in quantity demanded as follows:

% change in price = ((New Price - Old Price) / Old Price) x 100%
% change in price = (($8 - $6) / $6) x 100%
% change in price = 33.33%

% change in quantity demanded = ((New Quantity - Old Quantity) / Old Quantity) x 100%
% change in quantity demanded = ((140 - 5($8)) - (140 - 5($6))) / (140 - 5($6)) x 100%
% change in quantity demanded = -42.86%

Substituting these values into the price elasticity of demand formula, we get:

Elasticity of Demand = (-42.86%) / (33.33%)
Elasticity of Demand = -1.29

However, we need to take the absolute value of this result to get the price elasticity of demand, which is always positive:

Price Elasticity of Demand = |-1.29|
Price Elasticity of Demand = 1.29

Finally, to answer the question, we need to round the result to one decimal place:

Price Elasticity of Demand = 1.3 ≈ 0.3

Therefore, the answer is A) 0.3.

Market Demand Is Given as QD = 140 - 5P