Answer:
Explanation:
In response to the price rise from $50 to $60, the quantity demanded of product X drops from 400 to 300 units. We know that price elasticity of demand is a measure of the responsiveness of changes in demand as a result of a price change. Thus,
% change in price = [tex]\frac{Change in price}{Average of the prices}[/tex]
= [tex]\frac{60-55}{55}[/tex] = 0.1818
% Change in Quantity demanded
=[tex]\frac{Change in quantity demanded}{Average quantity demanded}[/tex]
= [tex]\frac{300-400}{350}[/tex]
= -0.2857
Thus,
Price elasticity of demand = [tex]\frac{percentage change in quantity demanded}{percentage change in price}[/tex]
= [tex]\frac{-0.2857}{0.1818}[/tex]
= -1.5715
Therefore, the price elasticity of demand = -1.5715
