Answer:
Price elasticity of demand = 0.5
Explanation:
A price elasticity of demand can be defined as a measure of the responsiveness of the quantity of a product demanded with respect to a change in price of the product, all things being equal.
Mathematically, the price elasticity of demand is given by the formula;
[tex] Price \; elasticity \; of \; demand = \frac {Percentage \; change \; in \; price}{Percentage \; change \; in \; demand} [/tex]
Given the following data;
Old price = $200
New price = $250
Old quantity demanded = 450
New quantity demanded = 300
To find the price elasticity of demand (PED);
First of all, we would determine the percentage change in price and demand.
[tex] Percentage \; change \; in \; price = \frac {250 - 200}{200} * 100 [/tex]
[tex] Percentage \; change \; in \; price = \frac {50}{200} * 100 [/tex]
[tex] Percentage \; change \; in \; price = \frac {5000}{200} [/tex]
Percentage change in price = 25%
[tex] Percentage \; change \; in \; demand = \frac {450 - 300}{300} * 100 [/tex]
[tex] Percentage \; change \; in \; demand = \frac {150}{300} * 100 [/tex]
[tex] Percentage \; change \; in \; demand = \frac {15000}{300} [/tex]
Percentage change in demand = 50%
Now, we can find the price elasticity of demand;
Substituting into the formula, we have;
[tex] Price \; elasticity \; of \; demand = \frac {25}{50} [/tex]
Price elasticity of demand = 0.5
Therefore, the degree of elasticity is said to be inelastic because the price elasticity of demand (PED) is less than 1.
