Answer to Question #154838 in Microeconomics for banu

Question

Average price of a CD reduces from $21 to $15. Company expected the quantity will increase 30%.

a. calculate the price elasticity of demand over the price range. 

Answer 1

price elasticity of demand $= \%$ change in quantity $/$ $\%$ change in price

$\%$ change in price $=\frac{15-21}{21}\times 100\%=-28.5714\%$

price elasticity of demand$=30\% /-28.5714\%=-1.05=|-1.05|=1.05$