Question

In a local market, the monthly price of Internet access service decreases from $\backslash (20$per account to $\backslash )10$per account, and the total quantity of monthly accounts across all Internet access providers increases from $100,000$to $100,000$ . What is the price elasticity of demand? Is demand elastic, unitelastic, or inelastic?

Short answer

The price elasticity of demand is Unit Elastic considering the respective changes in the price and the quantity demanded.

Step-by-step solution

Introduction

The percentage change in the amount required and the percentage change in the price are used to compute the price elasticity of demand. The price elasticity of demand is calculated using the mid-point method as shown below.

$\text{Mid point Elaticity}=\frac{Q_2-Q_1}{Q_2+Q_1/2}÷\frac{P_2-P_1}{P_2+P_1/2}$

When calculating demand elasticity, the percentage change in price and the amount demanded are taken into account.

 Explanation

The percentage change in price and the quantity demanded are measured as follows.

Change in quantity demanded as a percentage $=\frac{\frac{Q2-Q1}{Q2+Q1}}{2}$

$=\frac{\frac{200,000-100,000}{200,000+100,000}}{2}$

$=\frac{200,000}{300,000}$

$=0.67$

As a result, the change in quantity requested is $0.67$.

Explanation

The following is a percentage change in price measurement.

Price change as a percentage $=\frac{\frac{P2-P1}{P2+P}}{2}$

$=\frac{\frac{10-20}{10+20}}{2}$

$=\frac{-20}{30}$

$=-0.67$

As a result, the price has decreased by $-0.67$.

Explanation

Divide the percentage change in the quantity demanded by the percentage change in price to get the price elasticity of demand.

Demand Elasticity Price $=\frac{0.67}{-0.67}$

As a result, considering the respective changes in price and quantity demanded, the price elasticity of demand is Unit Elastic.