suppose the demand for eggs sold by a convenience store is given by the graph above. suppose that the store…
suppose the demand for eggs sold by a convenience store is given by the graph above. suppose that the store slashed the price of eggs from $5 per carton to $3 per carton. calculate the price elasticity of demand for this range using the mid - point method: (use at least 3 decimal points in your answer and all intermediate calculations. for changes in quantity and price as well as
Answer
Explanation:
Step1: Identify initial and new values
Let $P_1 = 5$, $P_2=3$, from the graph when $P_1 = 5$, $Q_1 = 30$ and when $P_2 = 3$, $Q_2 = 50$.
Step2: Calculate the mid - points
The mid - point of price $P_m=\frac{P_1 + P_2}{2}=\frac{5 + 3}{2}=4$. The mid - point of quantity $Q_m=\frac{Q_1+Q_2}{2}=\frac{30 + 50}{2}=40$.
Step3: Calculate percentage change in quantity
The percentage change in quantity $%\Delta Q=\frac{Q_2 - Q_1}{Q_m}\times100=\frac{50 - 30}{40}\times100 = 50%$.
Step4: Calculate percentage change in price
The percentage change in price $%\Delta P=\frac{P_2 - P_1}{P_m}\times100=\frac{3 - 5}{4}\times100=- 50%$.
Step5: Calculate price elasticity of demand
The price elasticity of demand $E_d=\frac{%\Delta Q}{%\Delta P}=\frac{50%}{-50%}=- 1.000$.
Answer:
-1.000