Suppose that the demand of a certain item is x=100e^(−0.02p). Evaluate the elasticity at 40:

Question

Suppose that the demand of a certain item is x=100e^(−0.02p)

Evaluate the elasticity at 40:

Answer 1

to find the elasticity of demand you want to use the formula

Ed = p/x * dx/dp

for this scenario we have

dx/dp = -2*e^(-0.02p)

meaning that

Ed = -2p/100 = -0.02p

at a price of $40 that means

Ed = -0.02(40) = -0.8

that means that a 1% increase in price would lead to a 0.8% decrease in demand, is the idea there! :)