In a local market, the monthly price of internet access service decreases from $40 to $30 , and the total quantity of monthly accounts across all internet access providers increases from 80 comma 000 to 180 comma 000. what is the value price elasticity of demand, expressed as a positive number?

Question

Lewis Santana

Business

6 October, 04:14

In a local market, the monthly price of internet access service decreases from $40 to $30 , and the total quantity of monthly accounts across all internet access providers increases from 80 comma 000 to 180 comma 000. what is the value price elasticity of demand, expressed as a positive number?

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Answers (1)

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Marley Castro · Answer 1

The answer is : The demand is elastic.

Elasticity =

[ (80,000 - 180,000) / ((80,000+180,000) / 2) ]/[ ($40 - $30) / (($40 + $30) / 2) ]|

[ (-100,000/130,000) ]/[ (10/55) ] = -.7692/.1818 = - 4.23

The answer is - 4.23, however when considering own price elasticity of demand, we ignore the negative sign and look at the absolute value to determine whether it is elastic or inelastic.