The demand function for potatoes has the quantity q = 1,000 - 10p.As the price of potatoes changes from 10A2 to 20A2, the absolute value of the price elasticity of demand for potatoes increases.

Question

Quizplus · Accepted Answer

The demand function provides the formula for calculating the price elasticity of demand as follows:
E = (% change in quantity demanded / % change in price)

Using the midpoint formula, we can calculate the initial elasticity of demand when the price of potatoes is 10A2 as follows:

E = [(q2 - q1) / ((q2 + q1) / 2)] / [(p2 - p1) / ((p2 + p1) / 2)]
E = [(1,000 - 10) / ((1,000 + 10) / 2)] / [(20 - 10) / ((20 + 10) / 2)]
E = 0.154

When the price of potatoes changes to 20A2, the quantity demanded decreases to 500. Using the same formula, we can calculate the new elasticity of demand as follows:

E = [(q2 - q1) / ((q2 + q1) / 2)] / [(p2 - p1) / ((p2 + p1) / 2)]
E = [(500 - 10) / ((500 + 10) / 2)] / [(20 - 10) / ((20 + 10) / 2)]
E = 0.318

Since the new elasticity is greater than the initial elasticity, we can conclude that the absolute value of the price elasticity of demand for potatoes has increased as the price of potatoes changed from 10A2 to 20A2. Therefore, the answer is A)True.

The Demand Function for Potatoes Has the Quantity Q =