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Math Help - multiple choice question elasticity of demand

  1. #1
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    multiple choice question elasticity of demand

    The elasticity of demand if p = 40 - 2q at a price of p = 8 is?

    (a) -0.35;
    (b) -0.5;
    (c) 0.25;
    (d) 0.5.
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  2. #2
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    you need to know the price elasticity of demand equation ( they will give it to you in test anyway)
    its  \frac{p}{q} \cdot \frac{\Delta q}{\Delta p}

    now since that formula is in terms of p , you want to rearrange it to be in terms of q.

     q = \frac{40-p}{2} =\frac{40-8}{2}  = \frac{32}{2}  = 16


    So using the given price of 8 you can work what q is. Then work out the derivative of p and q in relation to each other.  p=40-2q So derivative of q is 2 and derivative of p is 1.

     \frac{p}{q} \cdot \frac{2}{1} = \frac{8}{16} \cdot \frac{2}{1}

     \epsilon = 0.25

    Since elasticity is less than one , changes in price change quantity less than 1 for 1 , so it is inelastic.

    Does that help?
    Last edited by el123; August 19th 2009 at 03:29 PM. Reason: put wrong value
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  3. #3
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    Yup I've got it, thanks a lot
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