The demand curve is: QD = 500 – 1/2 P. a. Calculate the (point) price

The demand curve is: QD = 500 – 1/2 P.

a. Calculate the (point) price elasticity of demand when price is $100. Is demand elastic or inelastic?
b. Calculate the (point) price elasticity of demand when price is $700. Is demand elastic or inelastic?
c. Find the point at which point elasticity is equal to -1.

ANSWER

a. Elasticity = -1/2 (100/450 ) = -0.11, and is inelastic.
b. Elasticity = -1/2(700/150 ) = -2.5, and is elastic.
c. Elasticity is -1 at the midpoint of the demand curve, which is at a price of $500 and a quantity of 250.