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Suppose the quantity demanded for GPS is 20 when the price is $160, and 30 when the price is $140
Suppose the quantity demanded for GPS is 20 when the price is $160, and 30 when the price is $140. Answer the following questions.
a. When going from a price of $160 per unit to a price of $140 per unit, what is the price elasticity of demand of GPS units?
b. When going from a price of $140 per unit to a price of $160 per unit, what is the price elasticity of demand of GPS units?
c. Using the midpoint formula, what is the midpoint price elasticity of demand of GPS units between a price of $140 per unit and a price of $160 per unit?
Expert Solution
a. When price changes from $160 to $140, the percentage change in price is (140 - 160)/160 = -0.125, the percentage change in quantity is (30 - 20)/20 = 0.5. So the price elasticity is 0.5 / -0.125 = -4.
b. When price changes from $140 to $160, the percentage change in price is (140 - 160) /140 = 0.1429, the percentage change in quantity is (20 - 30)/20 = -0.3333 So the price elasticity is -0.3333 /0.1429 = -2.33
c. Using the mid-point method, the percentage change in price is (160 - 140)/ ((140 + 160)/2)= 0.133, the percentage change in quantity is (20 - 30)/((20 + 30)/2) = -0.4. So the price elasticity is -0.4/0.133 = -3.00.
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