Question

10. If the price of face mask is increasing from 5 birr to 25 birr the quantity demand for face maskis decreasing from 100 to 20 birr. Calculate price elasticity of demand?

Answer 1

Quantity mid point = $(Q1 + Q2)/2$ = (100 + 20)/2 = 60

Price mid point = $(P1 + P2)/2$ = (5 + 25)/2 = 15

% change in quantity = $(Q2 - Q1)/Quantity mid point$ = (20 - 100)/60 = -1.33

% change in price = $(P2 - P1)/Price mid point$ = (25 - 5)/15 = 1.33

Arc elasticity of demand = -1.33/1.33 = 1