Calculating the price elasticity of demand - A step-by-step guide Suppose that during the past year, the price of a laptop computer fell from $2,350 to $1,930

Economics Dec 18, 2020

Calculating the price elasticity of demand - A step-by-step guide

Suppose that during the past year, the price of a laptop computer fell from $2,350 to $1,930. During the same time period, consumer sales increased from 436,000 to 537,000 laptops.

Calculate the elasticity of demand between these two prices.

Expert Solution

Price elasticity = -1.29. The answer is negative because of the negative relationship between the quantity demanded and price. In this case, P0 is the original price, and P1 is the new price, and Q0 is the original quantity sold and Q1 is the new quantity:

P0 = 2,350
P1 = 1,930
Q0 = 436,000
Q1 = 537,000

Fill in the appropriate quantities for the formula for price elasticity of demand

% change in quantity demanded / % change in price
= ((537,000 - 436,000) / 537,000) / ((1930 - 2350) / 2350)
= - (0.2316 / 0.1787)
= -1.29

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