Posted by Randy on Wednesday, November 19, 2008 at 10:26am.
If the percent drop in consumption exceeds the percent increase in price. the demand is elastic. That is the case in your example.
See
http://en.wikipedia.org/wiki/Price_elasticity_of_demand
Could you please show me the workout on this ? Thank You
Price elasticity is the percentage change in price divided by the percentage change in quantity.
%change in P = 100*(.50/3.50) =14.29
%change in Q = 100*(-10/30) = -33.33
Elasticity therefore is -33.33/14.29 = -2.33
Since elasticity is > 1 (absolute value) it is elastic.
(Note: some economists prefer the mid-point method for calculating percentage change. here %change P is .5/3.75 and %change Q is -10/25).
Thank You :)
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