Answer to Question #250700 in Microeconomics for taylor

Question

Consider the following information from the market for lemonade: Price Quantity Demanded Quantity Supplied $1 500 cups 150 cups $2 200 cups 310 cups

(a) As the price changes from $1 to $2, what is the value of price elasticity of demand?

Answer 1

I shall use midpoint approach for calculating elasticity

a)

Initial quantity$=Q_o=500$

Final quantity$=Q_1=200$

Average quantity$=Q=\frac{(500+200)}{2}=350$

Initial price$=P_o=\$1$

Final price$=P_o=\$2$

Average price$=Q=\frac{(1+2)}{2}=\$1.50$

Price elasticity of demand$=\frac{[\frac{(Q_1-Q_o)}{Q}]}{[\frac{(P_1-P_o)}{P}]}=\frac{[\frac{(200-500)}{350}]}{[\frac{(2-1)}{1.50}]}=-1.28571$