If there is a price change of 30% and the quantity demanded decreases by 50%, then the elasticity of demand is _____.
Is this good elastic or inelastic?
Do a little research, then take a shot. What do you think?
Hint: elastic.
To calculate the elasticity of demand, you need to know the percentage change in quantity demanded divided by the percentage change in price. In this case, the price change is given as 30% and the quantity demanded decrease as 50%.
First, let's calculate the percentage change in quantity demanded. The formula is:
Percentage change in quantity demanded = ((new quantity demanded - old quantity demanded) / old quantity demanded) * 100%
In this case, the new quantity demanded is 50% less than the old quantity demanded:
Percentage change in quantity demanded = ((-50) / old quantity demanded) * 100%
Next, let's calculate the percentage change in price. The formula is:
Percentage change in price = (new price - old price) / old price * 100%
In this case, the change in price is given as 30%, so the percentage change in price is 30%.
Now, use the formula for the elasticity of demand:
Elasticity of demand = (percentage change in quantity demanded) / (percentage change in price)
Plugging in the values, we get:
Elasticity of demand = ((-50) / old quantity demanded) * 100% / 30%
Simplifying further, we have:
Elasticity of demand = (-50 / old quantity demanded) / 0.3
The resulting value will give you the elasticity of demand. If the value is greater than 1, it indicates elastic demand. If the value is less than 1, it indicates inelastic demand. If the value is exactly 1, it indicates unitary elasticity.
Therefore, knowing the new quantity demanded and the old quantity demanded, you can calculate the elasticity of demand and determine whether it is elastic or inelastic.