Jim saw a decrease in the quantity demanded for his firm’s product from 8000 to 6000 units a week when he raised the price of the product from $200 to $250. Based on this information, the price elasticity of demand for Jim’s product is:

The demand for Jim’s product is elastic

Explanation:

In this question, we are to calculate the price elasticity of demand for the product.

We proceed as follows;

The formula for calculating elasticity of demand is

e = [(Q2 - Q1) / {(Q1 + Q2) / 2}] / [(P2 - P1) / {(P1 + P2) / 2}]

Here, Q2 = 6000

Q1 = 8000

P2 = $250

P1 = $200

e = [(6000 - 8000) / {(8000 + 6000) / 2}] / [($250 - $200) / {($200 + $250) / 2}]

e = [(- 2000) / 7000] / [(50 / 225]

e = - 1.3

That means absolute value of e is 1.3.

So, as the absolute value of e is more than 1 (i.e., 1.3), that means the demand for the product is elastic.

1

Explanation:

Price elasticity of demand is the degree to which a change in price causes a change in quantity demanded, which can be calculated by dividing the percentage change in quantity demanded by percentage change in price.

Therefore, PED for Jim's product = % change in quantity demanded / % change in price

% change in QD = (8000 · 6000) / 8000 × 100 = 25%

% change in price = (200 · 250) / 200 × 100 = 25%

PED = 25% / 25% = 1

PED for Jim's product = 1.

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