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Homework answers / question archive / The inverse demand function for a good is as follows: P = 40 - 1
The inverse demand function for a good is as follows: P = 40 - 1.25Q. What is the price elasticity of demand at a price of $10? Round your final answer to two decimal places.
Group of answer choices
-1.33
-0.52
-3.00
-0.33
-0.67
Answer
So, the correct option is 4th "-0.33".
Explanation
Computation of Price Elasticity of Demand:
Converting the inverse demand to the normal form
P= 40-1.25Q
1.25Q = 40-P
Q = 32-0.8P
P = $10
Q = 32-0.8*10 = 24
Price Elasticity of Demand = dQ/dP * P/Q
= -0.8*10/24
Price Elasticity of Demand = -0.33
