The demand function in Table 3-1 is Q_X^d = 100

Question

The demand function in Table 3-1 is Q_X^d = 100 - 2P_X. Based on this information, compute the own price elasticity of demand when P_X = $25 (point C). A) -1.09 B) -1 C) -0.50 D) -0.25

Quizplus · Accepted Answer

To calculate the own price elasticity of demand at point C, we need to use the formula: Elasticity = (% Change in Quantity Demanded / % Change in Price) At point C, the price (P_X) is $25. To calculate the quantity demanded, we can substitute this price into the demand function: Q_X^d = 100 - 2(25) = 50 Now, let's imagine a small change in price from $25 to $24. Plugging those values back into the demand function yields: Q_X^d = 100 - 2(24) = 52 Using the formula, we can say that the % change in quantity demanded is: % Change in Quantity Demanded = [(52 - 50) / 50] x 100% = 4% The % change in price is: % Change in Price = [(24 - 25) / 25] x 100% = -4% (Note that we take the absolute value of the % change in price, since elasticity is always positive even when the price and quantity move in opposite directions.) Now we can plug in these values into the elasticity formula: Elasticity = (% Change in Quantity Demanded / % Change in Price) Elasticity = 4% / |-4|% = 1 Therefore, the own price elasticity of demand at point C is -1. Answer choice B) is the correct choice.

The Demand Function in Table 3-1 Is QXd = 100