DEMAND FOR SLIDERS 1.8 16 1.4 1.2 0.8 0.6 04 0.2 20 60 8 0 100 QUANTITY (SLIDERS

Question

DEMAND FOR SLIDERS 1.8 16 1.4 1.2 0.8 0.6 04 0.2 20 60 8 0 100 QUANTITY (SLIDERS PER DAY) 2. See the graph of demand for sliders. (Sliders are very small hamburgers, similar to those served at White Castle.) Note that all quantities are nultiples of 10. For each range bekow, use the midpoint formula to caleulate the price-elasticity of demand along the listed range: state whether demand is elastic. inelastic, or unit-elastic: and describe what happens to revenue when the price rises from th lower of the two prices to the higher of the two prices. Rauges: S0.20 to $0.10: s0.50 to S1.20 $1.60 to $1.s0

Explanation / Answer

Working notes:

(1) Elasticity = (Change in Quantity demanded / Average quantity demanded) / (Change in Price / Average price)

(2) Demand is:

- Elastic, if absolute value of elasticity > 1

- Inelastic, if absolute value of elasticity < 1

- Unit Elastic, if absolute value of elasticity = 1

Therefore, computed as follows.

(A) When P = $0.2, Q = 90 & When P = $0.4, Q = 80

Elasticity = [(80 - 90) / (80 + 90) / 2] / [$(0.4 - 0.2) / $(0.4 + 0.2) / 2]

= [- 10 / (170 / 2)] / [0.2 / (0.6 / 2)]

= (- 10 / 85) / (0.2 / 0.3)

= - 0.18

Demand is inelastic.

(B) When P = $0.8, Q = 60 & When P = $1.2, Q = 40

Elasticity = [(40 - 60) / (40 + 60) / 2] / [$(1.2 - 0.8) / $(1.2 + 0.8) / 2]

= [- 20 / (100 / 2)] / [0.4 / (2 / 2)]

= (- 20 / 50) / (0.4 / 1)

= - 1

Demand is unit elastic.

(C) When P = $1.6, Q = 20 & When P = $1.8, Q = 10

Elasticity = [(10 - 20) / (10 + 20) / 2] / [$(1.8 - 1.6) / $(1.8 + 1.6) / 2]

= [- 10 / (30 / 2)] / [0.2 / (3.4 / 2)]

= (- 10 / 15) / (0.2 / 1.7)

= - 6.67

Demand is elastic.

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