Question

1. Flowers are one of the most common gifts to give on Valentine's Day, a celebration that occurs every year on the 14th of February. A flower shop knows that in the past, because of the high demand for flowers on this day, it could sell 50 bouquets of flowers for $119.50 each. This year, on Valentine's Day, the flower shop decides to increase the price of the bouquets to $129.50 and sells 48 bouquets.

Which of the following statements are true (to four decimal places):

The point price elasticity of demand for the bouquets at a price of $119.50 is 0.4780.

The point price elasticity of demand for the bouquets at a price of $119.50 is 11.9500.

The point price elasticity of demand for the bouquets at a price of $119.50 is 0.0837.

A 1% decrease in the price of bouquets would lead to a 0.4780% increase in the quantity of bouquets demanded.

Answer 1

Answer on Question #62012 - Economics - Microeconomics

1. Flowers are one of the most common gifts to give on Valentine's Day, a celebration that occurs every year on the 14th of February. A flower shop knows that in the past, because of the high demand for flowers on this day, it could sell 50 bouquets of flowers for $119.50 each. This year, on Valentine's Day, the flower shop decides to increase the price of the bouquets to $129.50 and sells 48 bouquets.

Which of the following statements are true (to four decimal places):

The point price elasticity of demand for the bouquets at a price of $119.50 is 0.4780.

The point price elasticity of demand for the bouquets at a price of $119.50 is 11.9500.

The point price elasticity of demand for the bouquets at a price of $119.50 is 0.0837.

A 1% decrease in the price of bouquets would lead to a 0.4780% increase in the quantity of bouquets demanded.

Answer.

A. The point price elasticity of demand for the bouquets at a price of $119.50 is 0.4780.

D. A 1% decrease in the price of bouquets would lead to a 0.4780% increase in the quantity of bouquets demanded.

Solution.

The point price elasticity of demand is calculated as

$$K_d = \frac{\Delta Q}{Q1} \cdot \frac{\Delta P}{P1}$$ $$K_d = \frac{48 - 50}{50} \cdot \frac{129.5 - 119.5}{119.5} = 0.478$$

As Kd=0.478, it means that a 1% decrease in the price of bouquets (from $119.50) would lead to a 0.4780% increase in the quantity of bouquets demanded.

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