Question

1. Given the demand function P= 20-5Q, find the price elasticity of demand when price of the commodity is 5 Birr per unit. Mention if the demand is price elastic or inelastic at this point

Answer 1

$P= 20-5Q$

$5 = 20 - 5Q$

$5 - 20 = -5Q$

$-15 = -5Q$

$Q = 3$

$Ed=$ $dQ/dP*P/Q$

$Ed=-1/5*5/3 = -0.3333$

Since the value of the elasticity is negative, The demand is price inelastic.