Question

2. Using arc method calculate the elasticity of demand for oranges when the price
rises from $2 to $3 Price per orange, its demand reduces from 80 thousands oranges
to 70 thousands oranges. Interpret your answer in term of the farmer’s revenue.

Answer 1

% change in quantity demanded 

$$Q= (Q_2 – Q_1) / Q_1 = (70 – 80) / 70 = -14\%.$$

% change in price 

$$P= (P_2 – P_1) / P_1 = (3 – 2) / 3 = 33\%.$$

The price elasticity of demand

$$PE_d = 14 / 33 = 0.42$$