The demand function is P= 20$-0.5*Q.

1) Plot the function and explain how the price elasticity of demand changes along this straight-line.

2) Use the point formula to compute the price elasticity of demand when the current price is 15$. 3) Verify that you get the same result by using the ratio between the percentage change in quantity demanded and the percentage change in price when the price drops from 15$ to 10$ (USE 15$ AND THE CORRESPONDING QUANTITY DEMANDED AS THE STARTING POINT TO COMPUTE THE PERCENTAGE CHANGES).

4) Use the point formula to compute the price elasticity of demand when the current price is 10$. 5) Verify that you get the same result by using the ratio between the percentage change in quantity demanded and the percentage change in price when the price rises from 10$ to 15$ (USE 10$ AND THE CORRESPONDING QUANTITY DEMANDED AS THE STARTING POINT TO COMPUTE THE PERCENTAGE CHANGES).

6) You should have found that, with reference to the 15$-10$ segment of the demand curve the price elasticity of demand when the starting point is 15$ and the price drops to 10$ is higher than when the starting point is 10$ and the price rises to 15$. Use the midpoint formula to identify the 'intermediate' value of the price elasticity of demand valid for the entire segment 15$-10$ regardless of the starting

point. 7) Verify that the value of the price elasticity of demand that you found with the MIDPOINT formula for the segment 15$-10$ coincides with the value resulting from the POINT formula when the price is 12,5$ (i.e. halfway between 15$ and 10$).