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I am a bit lost in this calculation.
Price of $20 10000 unit sold
Price of $25 9000 unit sold.
What is the point of elasticity of demand at $20?Point of elasticity of demand= Proportional change in volume / Proportional change in price.
My calculation:
Proportional change in volume: (10000-9000)/ 10000= 0.1= 10 %
Proportional change in price: (25-20)/ ???
I thought I need to divide by the 25 but according the solution it has to be 20. Why?
(I have a feeling because the question is about the demand of 20)Could you please explain this calculation method a bit more?
Thanking you in advance,
Katalinka
You have to use the same point for each part of the calculation.
So $20 is for demand of 10,000
Therefore, if you use (10,000 – 9,000)/10,000 for the proportional change in demand you have to use (25 – 20)/20 for the proportional change in price.
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