Answer to Question #207003 in Microeconomics for Thandeka Mtshali

Question

A decrease in the price of a product from R40,00 to R30,00 causes the quantity demanded to increase from 2 000 to 2 500 units. Using the arc elasticity of demand, the price elasticity of demand is

Answer 1

Arc Elasticity of Demand=$\Delta{Q} \over\Delta{P}$ $\times{P1 +P2}\over{Q1+Q2}$

=${2500-2000}\over{30000-40000}$ $\times$ ${40000+30000}\over2000+2500$

=$\ 500\over -10000$ $\times$ $\ 70000\over 4500$

Price Elasticity Of Demand =$\ 0.78$