Example
The demand for cookies follows the equation `Q_D = 10 - 2 P`.
The price elasticity of demand is
$$ \eta = \frac{d Q_D}{d P} \frac{P}{Q_D} = - 2 \frac{P}{Q_D} = - 2 \frac{P}{10 - 2 P} $$If the price of a cookie is $1, the price elasticity of demand is `- \frac{2}{8} = -0.25`.
A 1% price increase (`P = $1.01`) leads to a 0.25% decreases of the number of cookies demanded (`Q_S = 7.98`).
Question
The demand for cookies follows the equation `Q_D = 24 - 73 P`.
What is the Price Elasticity of Demand?
The price elasticity of demand is
$$ \eta = \frac{d Q_D}{d P} \frac{P}{Q_D} = - 73 \frac{P}{Q_D} $$