Exhibit 5-2 price and quantity demanded data price quantity demanded 5 20 4 25 3 30 2 35 1 40 using exhibit 5-2, what is the price elasticity of demand when the price falls from five dollars to four?

The price elasticity of demand is -5

Explanation:

Elasticity of demand measure the responsiveness of demand against the change in price of the product. It shows how much demand changes if there is the change in price.

Using mid point method

Change in Demand = $20 - $25

Change in Demand = -$5

Change in price  = $5 - $4

Change in price  = $1

As we know

Elasticity of Demand = Change in demand / Change in price

Elasticity of Demand = -$5 / $1

Elasticity of Demand = -5

1

Explanation:

Since we need to determine the price elasticity of demand (PED) for a given range, not a specific price, we must use the midpoint method:

PED = {(Q2 - Q1) / [(Q2 + Q1) / 2]} / {(P2 - P1) / [(P2 + P1) / 2]}

= {(25 - 20) / [(25 + 20) / 2]} / {(4 - 5) / [(4 + 5) / 2]}

= (5 / 22.5) / (-1 / 4.5) = 0.2222 / -0.2222 = -1 ≈ 1 (when we calculate PED we use absolute values)

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