Answer:
Price elasticity of demand, [tex]P_{ED}[/tex] = 1.63
Explanation:
We know,
Price elasticity of demand, [tex]P_{ED}[/tex] = [tex]\frac{Percentage change in Quantity Demanded}{Percentage change in prices}[/tex]
We will be using mid-point method to calculate the price elasticity.
Here,
Percentage change in Quantity demanded = [tex]\frac{Q_{1} - Q_{0}}{\frac{Q_{1} + Q_{0}}{2}}[/tex] × 100
or, Percentage change in Quantity demanded = [tex]\frac{26,000 - 10,000}{\frac{26,000 + 10,000}{2}}[/tex] × 100
Therefore, % change in Quantity demanded = [tex]\frac{16,000}{18,000}[/tex] × 100 = 88.89%
Again,
Percentage change in price = [tex]\frac{P_{1} - P_{0}}{\frac{P_{1} + P_{0}}{2}}[/tex] × 100
or, Percentage change in price = [tex]\frac{1.00 - 1.75}{\frac{1.00 + 1.75}{2}}[/tex] × 100
Therefore, Percentage change in price = [tex]\frac{-0.75}{1.375}[/tex] × 100 = - 54.55%
Therefore, Price elasticity of demand, [tex]P_{ED}[/tex] = 88.89% ÷ (- 54.55%) = 1.63
We know, price elasticity is always positive. Therefore, we have to give an absolute value for price elasticity.
