What is the point price elasticity of demand formula and how can it be calculated?
The point price elasticity of demand formula is E_p = (dQ / dP) x (P / Q), where dQ / dP is the derivative of quantity demanded with respect to price. By using the formula E_p = (dQ / dP) x (P / Q), we can calculate the point price elasticity of demand for a good.
Understanding Point Price Elasticity of Demand
Point Price Elasticity Formula
The formula for point price elasticity of demand is E_p = (dQ / dP) x (P / Q), where the derivative of quantity demanded with respect to price is represented by dQ / dP.
Calculation Method
Given the demand function P = 718 - 30 A for a good, we can substitute the price value P = 15 to find the quantity demanded Q at that price. By calculating Q = (718 - 15) / 30, we get Q = 23.43.
Next, substitute the values of P = 15 and Q = 23.43 into the elasticity formula: E_p = (- 30 x 15 / 23.43) x (15 / 23.43) / 15. By solving this equation, we find the point price elasticity of demand when P = 15 to be -0.81.
Therefore, the point price elasticity of demand for the good when the price is $15 is -0.81, indicating an inelastic demand for the product at that price point.