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3 May, 10:59

Suppose the market for orange juice is in equilibrium at a price of $2.00 per bottle and a quantity of 4200 bottles per month. Now suppose that at a price of $3.00 per bottle, quantity demanded falls to 3000 bottles per month and quantity supplied increases to 4500 bottles per month

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  1. 3 May, 11:20
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    Price elasticity of demand = 1.2

    Explanation:

    Given:

    Old price (P0) = $2

    New Price (P1) = $3

    Old quantity (Q0) = 4,200

    New quantity (Q1) = 3,000

    Price elasticity of demand = ?

    Computation of Price elasticity of demand:

    Price elasticity of demand = % change in quantity / % change in price

    Price elasticity of demand = [ (4,200-3,000) / 3,000] / [ (3-2) / 3]

    Price elasticity of demand = 1.2
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