# price elasticity of demand

• Jan 28th 2007, 06:37 PM
helen
price elasticity of demand
the demand for a product is f(p)=a-bp, where f(p) is quantity demanded per day and p is the price per unit sold.

a) calculate the point price elasticity: my response: please correct if is wrong: e=f'(p)(p/f(P))=-b/(a-bp/p)=-b/(a/p)-b

b) this i can not figure it out: determine the value of p that will make price elasticity of demand equal 2.

thank you
helen
• Jan 28th 2007, 08:53 PM
JakeD
Quote:

Originally Posted by helen
the demand for a product is f(p)=a-bp, where f(p) is quantity demanded per day and p is the price per unit sold.

a) calculate the point price elasticity: my response: please correct if is wrong: e=f'(p)(p/f(P))=-b/(a-bp/p)=-b/(a/p)-b

b) this i can not figure it out: determine the value of p that will make price elasticity of demand equal 2.

thank you
helen

Your answer to (a) is correct. I assume for (b) the problem is that e = -b/(a/p)-b is negative and 2 is positive. Use the absolute value for the elasticity. See the second paragraph of the introduction here.