pling Label the following hypothetical demand scenarios. Use the midpoint method
ID: 1188739 • Letter: P
Question
pling Label the following hypothetical demand scenarios. Use the midpoint method. ntain Yourself!, a plastic container company, raises the price of its signature "unchbox" container from $3.00 to $4,00. As a result, the quantity sold drops from 20,000 to 15,000. Economists working for the United States have determined that the elasticity of demand for gasoline is 0.5 CapCity Metro decides to increase bus fare rates from $2.00 to $2.21. Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day. Inelastic Unit Elastic Elastic Perfectly Elastic Perfectly Inelastic Map debExplanation / Answer
(a)
Elasticity of demand = Change in quantity / Change in price
= [(15,000 - 20,000) / (15,000 + 20,000) / 2] / [(4 - 3) / (4 + 3) / 2]
= [5,000 / 17,500] / [- 1 / 3.5]
= 0.2857 / - 0.2857
= - 1 [Unit elastic]
(b) Elasticity of demand = 0.5 < 1, so inelastic demand.
(c) Elasticity = [(61,000 - 70,000) / (61,000 + 70,000) / 2] / [(2.21 - 2) / (2.21 + 2) / 2]
= - 0.1374 / 0.0997 = - 1.38
Since absolute value of elasticity > 1, Elastic demand.
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