Question

suppose the demand for eggs sold by a convenience store is given by the graph above. suppose that the store slashed the price of eggs from $5 per carton to $3 per carton. calculate the price elasticity of demand for this range using the mid - point method: (use at least 3 decimal points in your answer and all intermediate calculations. make sure to choose the correct sign for changes in quantity and price as well as for the elasticity.): 1. the percentage change in quantity is select % 2. the percentage change in price is select % 3. the implied price elasticity of demand is equal to select 4. this means that the demand for eggs sold at the convenience store for this range of prices is select

Explanation:

Step1: Determine initial and new quantities

From the graph, when price $P_1 = 5$, quantity $Q_1$ (read from the graph) is 20. When price $P_2=3$, quantity $Q_2$ (read from the graph) is 60.

Step2: Calculate percentage - change in quantity

The formula for percentage - change in quantity using the mid - point method is $\%\Delta Q=\frac{Q_2 - Q_1}{\frac{Q_2+Q_1}{2}}\times100$.
$\%\Delta Q=\frac{60 - 20}{\frac{60 + 20}{2}}\times100=\frac{40}{40}\times100 = 100.000\%$

Step3: Calculate percentage - change in price

The formula for percentage - change in price using the mid - point method is $\%\Delta P=\frac{P_2 - P_1}{\frac{P_2+P_1}{2}}\times100$.
$\%\Delta P=\frac{3 - 5}{\frac{3 + 5}{2}}\times100=\frac{- 2}{4}\times100=-50.000\%$

Step4: Calculate price elasticity of demand

The formula for price elasticity of demand $E_d$ is $E_d=\frac{\%\Delta Q}{\%\Delta P}$.
$E_d=\frac{100.000\%}{-50.000\%}=-2.000$

Step5: Determine the nature of demand

Since $|E_d| = 2>1$, the demand is elastic.

Answer:

1. $100.000$
2. $-50.000$
3. $-2.000$
4. Elastic