A drop in the price of lemons from 100 per kg to 60 per kg increases the quantity demanded from 1.75 to 7 kg per week. Calculate the price elasticity of demand?
Answers
Explanation:
The price elasticity of demand is calculated as the percentage change in quantity divided by the percentage change in price.
Change in price 40 / 100 = 0.4
Change in quantity 5.25 / 1.75 = 3
Ep = 3 / 0.4 = 7.5
Answer: price elasticity of demand= 7.5
Explanation:
The income elasticity of demand is calculated by dividing the percent change in quantity requested by the percent change in income. Businesses use it to forecast the impact of a business cycle on sales. The phrase "income elasticity" describes how the demand for a certain item fluctuates as the consumer's real income changes. In other words, it measures how sensitive the demand for an item is to changes in actual income.
income elasticity of demand= % change in income/ change in quantity demanded
percentage change of quantity demanded =new value−old value/old value
percentage change of quantity demanded = 5.25/1.75
=3
percentage change in price = 100-60
=40/100
=0.4
Therefore price elasticity of demand = percentage change of quantity demanded/percentage change in income
=3/0.4
=7.5
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