The inverse demand function for a good is as follows: P = 40 - 1

Economics Mar 02, 2021

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

Expert Solution

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

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