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Homework answers / question archive / James has been selling 5000 baseball caps per month for £6
James has been selling 5000 baseball caps per month for £6.50 each. When he increased the price to £14 he sold only 4000 baseball caps. Using the arc-elasticity formula, find the price elasticity of demand.
Here,
Initial quantity =5000 baseball Caps
Initial Price = 6.5
Final Quantity = 4000 baseball Caps
Final Price = 14
Mid point of quantity = 4500
mid point of price =(14 + 6.5) /2 = 10.25
Arc Elasticity = Change in Q / Change in P * Mid point P/ Mid point Q
Arc Elasticity = (1000 / 7.5) * (10.25 / 4500 )= 0.304
