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Suppose the price of a ticket to a Lenny Kravitz concert is $41 and at that price, the quantity of tickets demanded is 17,000 per concert. Using the midpoint method of calculating percentage changes, if Mr. Kravitz raises the price to $48 and the quantity demanded decreases to 16,000, the price elasticity of demand for his concert tickets is:_______.

A. 1.00.

B. 15.73.

C. 0.93.

D. 6.06.

E. 0.39.

Respuesta :

Answer: 0.39

Explanation:

jepessoa

Answer:

E) 0.39

Explanation:

the price elasticity of demand measures how much will a 1% change in price affect the quantity demanded.

  • if a 1% change in price changes the quantity demanded in a higher proportion, then the PED > 1, so the demand is elastic.
  • if a 1% change in price changes the quantity demanded in a lower proportion, then the PED < 1, so the demand is inelastic.
  • if a 1% change in price changes the quantity demanded in the same proportion, then the PED = 1, so the demand is unit elastic.

PED using the midpoint method = {(Q2 - Q1) / [(Q2 + Q1) / 2]} / {(P2 - P1) / [(P2 + P1) / 2]}

PED = {(16,000 - 17,000) / [(16,000 + 17,000) / 2]} / {(48 - 41) / [(48 + 41) / 2]} = {-1,000 / 16,500} / {7 / 44.5 } = -0.0606 / 0.1573 = -0.385 ≈ 0.39 inelastic

*PED is always negative, but we use the absolute value for practical terms, e.g. a price decrease will increase the quantity demanded.

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