Suppose the price of apples rises from $3 a pound to $3.45 and your
consumption of apples drops from 30 apples a month to 21 apples.
Calculate your price elasticity of demand of apples. What can you say
about your price elasticity of demand of apples? Is it Elastic,
Inelastic, or Unitary Elastic?

Hi eco5912!!


We have the following info:

Old Price = $3.00
New Price = $3.45

Old Demand = 30 apples
New Demand = 21 apples


Definition:
The Price Elasticity of Demand measures the rate of response of
quantity demanded due to a change in the price.

Calculation:
                             |  %change in quantity demanded  |
Price Elasticity of Demand = | ------------------------------ | ;
                             | %proportionate change in price | 

                  | |  
Note: the symbols |x| means the absolute value of x.
                  | |
where:
%change in quantity demanded = (New Demand - Old Demand)/Old Demand
and 
%proportionate change in price = (New Price - Old Price)/Old Price


Now we know how to find the price elasticity of demand of the apples:

%change in quantity demanded = (New Demand - Old Demand)/Old Demand =
                             = (21 - 30)/30 =
                             = -9/30 =
                             = -0.30 (= 30%)

%proportionate change in price = (New Price - Old Price)/Old Price =
                               = (3.45 - 3)/3 =
                               = 0.45/3 =
                               = 0.15 (= 15%)

Now do:

-0.30/0.15 = -2 

we drop the minus sign to get the Price Elasticity of Demand:

Price Elasticity of Demand = 2 > 1

Due the value of the Price Elasticity of Demand of apples is greater
than 1 we say that it is ELASTIC. This means that the demand vary in a
greater proportion than the prices do, in other words a price change
will cause a larger change in quantity demanded.


For references I suggest you to visit the following pages:
"Price Elasticity":
http://ingrimayne.saintjoe.edu/econ/elasticity/Elastic1.html

"Computing Price Elasticity":
http://ingrimayne.saintjoe.edu/econ/elasticity/ComputeElast.html


I hope that this helps you. If you find anything unclear or that
require further explanation or research, please ask for a Request for
Answer Clarification before rate this answer, I will gladly assist you
further.


Best regards.
livioflores-ga

THANKYOU