Answer:
-3.03
Step-by-step explanation:
Given that,
Initial price = $5
Initial demand = 12 units
New price = $7
New demand = 4 units
Average demand:
= (Initial demand + New demand) ÷ 2
= (12 + 4) ÷ 2
= 8 units
Average price = (Initial price + New price) ÷ 2
= ($5 + $7) ÷ 2
= $6
Percentage change in quantity demand:
= Change in demand ÷ Average demand
= (4 - 12) ÷ 8
= - 8 ÷ 8
= -1%
Percentage change in price:
= Change in price ÷ Average price
= ($7 - $5) ÷ $6
= $2 ÷ $6
= 0.33%
Therefore, the price elasticity of demand is as follows:
= Percentage change in quantity demand ÷ Percentage change in price
= -1 ÷ 0.33
= -3.03
