Suppose that Bobo purchases 1 pizza per month when the price is
- What is the price elasticity of Bobo’s demand curve?
The Correct Answer and Explanation is:
To calculate the price elasticity of demand, more than one point on the demand curve is required. The elasticity formula is:Price Elasticity of Demand=% Change in Quantity Demanded% Change in Price\text{Price Elasticity of Demand} = \frac{\%\text{ Change in Quantity Demanded}}{\%\text{ Change in Price}}Price Elasticity of Demand=% Change in Price% Change in Quantity Demanded
In the case provided, Bobo purchases 1 pizza per month when the price is 15, but no information is given about what happens to quantity demanded when the price changes. Without at least two different price and quantity combinations, it is not possible to calculate a numerical value for price elasticity of demand.
Explanation:
Price elasticity of demand measures the responsiveness of the quantity demanded of a good to changes in its price. A price elasticity greater than 1 indicates elastic demand (quantity demanded changes significantly with price), while an elasticity less than 1 indicates inelastic demand (quantity demanded changes little with price). An elasticity equal to 1 indicates unit elastic demand.
To compute this elasticity, data on at least two points along the demand curve is essential. For example, if Bobo bought 2 pizzas when the price was 10 and 1 pizza when the price was 15, then the change in price and quantity would allow the computation of the percentage changes required for the elasticity formula.
Given only a single data point (1 pizza at a price of 15), there is no information about how demand changes with any change in price. This means the slope of the demand curve is unknown, and thus elasticity cannot be determined.
In summary, without additional data about Bobo’s behavior at other price points, the price elasticity of demand cannot be calculated. Only a description of a point on the demand curve is available, not the curve’s shape or slope.
