Asked by Narendrakumar Chowdary on May 25, 2024

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The demand function for potatoes has the quantity q  1,000  10p.As the price of potatoes changes from 10A2 to 20A2, the absolute value of the price elasticity of demand for potatoes increases.

Price Elasticity

A measure of the responsiveness of the quantity demanded or supplied of a good to a change in its price.

Demand Function

An equation that describes the quantity of a good or service demanded at different prices.

  • Acquire an understanding of the principle and numeric determination of price elasticity of demand.
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SG
Stefy GilesMay 28, 2024
Final Answer :
True
Explanation :
The demand function provides the formula for calculating the price elasticity of demand as follows:
E = (% change in quantity demanded / % change in price)

Using the midpoint formula, we can calculate the initial elasticity of demand when the price of potatoes is 10A2 as follows:

E = [(q2 - q1) / ((q2 + q1) / 2)] / [(p2 - p1) / ((p2 + p1) / 2)]
E = [(1,000 - 10) / ((1,000 + 10) / 2)] / [(20 - 10) / ((20 + 10) / 2)]
E = 0.154

When the price of potatoes changes to 20A2, the quantity demanded decreases to 500. Using the same formula, we can calculate the new elasticity of demand as follows:

E = [(q2 - q1) / ((q2 + q1) / 2)] / [(p2 - p1) / ((p2 + p1) / 2)]
E = [(500 - 10) / ((500 + 10) / 2)] / [(20 - 10) / ((20 + 10) / 2)]
E = 0.318

Since the new elasticity is greater than the initial elasticity, we can conclude that the absolute value of the price elasticity of demand for potatoes has increased as the price of potatoes changed from 10A2 to 20A2. Therefore, the answer is A)True.