Question

Calculate the price elasticity of demand when the price of pencils rises from $4.50 to $5.50, when income is $20,000.

Answer 1

price elasticity of demand

$=\frac{\%\Delta quantity}{\%\Delta price}\\\Delta=\frac{p_2-p_1}{p_1}=\frac{1}{4.5}=0.22\\ \Delta=\frac{Q_2-Q_1}{Q_1}=\frac{-800}{1600}=-0.5\\price \space elasticity\space of \space demand=\frac{-0.5}{0.22}=-2.25$