Question

Suppose the slope of linear demand curve equals -2, the average price equals 8 Birr and the average quantity demand = 100 units, A) Calculate the arc-elasticity of demand. B) Is demand elastic or inelastic? C) Interpret the result

Answer 1

A) The arc-elasticity of demand is:

$Ed = -2×8/100 = -0.16.$

B) The demand is inelastic.

C) The result means, that the changes in price will cause much lower effect on the quantity demanded.