Thread: 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.

you need to know the price elasticity of demand equation ( they will give it to you in test anyway)
its

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




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. So derivative of q is 2 and derivative of p is 1.





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

Does that help?

Yup I've got it, thanks a lot