CHAPTER 3 & 4 EXAMPLES
Example:
Suppose that at a price of $100 monthly sales of bicycles in a city are 2000. Next month the
price of a bicycles goes up to $101. As a result of a price increase the quantity of bicycles
demanded per month falls to 1990. What is the price elasticity of demand?
The percentage change in quantity demanded:
∆Q /(Q1 + Q2) = (1990 – 2000)/3990 = – 0.0025
The percentage change in price:
∆P/(P1 + P2) = (101 – 100)/202 = 0.0050
The price elasticity of demand
= 0.0050/-0.0025 = –2
