The price elasticity of demand. The price elasticity of demand measures the effect of price on demand. It is defined as pdq % change in demand Ewq dp % change in price Example: Consider the demand function p= -0.05q + 50 where p is the price in dollars and q is the quantity demanded of a certain product. Note: You may need to do the work on scratch paper and record the answers on this sheet! (a) Suppose the current price is p = $30, what is the corresponding demand? (i.e. q value) (b) Suppose the current price is p = $30 and we decide to decrease the price by 30 cents (i.e. a 1% decrease in price). Find the new price and the corresponding demand to this new price. (c) Use your answers from (a) and (b) to compute the ratio video if you don't know how to do this!) change in (Perhaps check the lecture Now suppose the current price is p - $20. Find the corresponding demand ie q value) at this price. (e) Continuing from (d) suppose we decide to increase the price by 1%. What is the new price? What is the corresponding demand at this new price? (1) Use your answer from (d) and (e) to compute.ch (e) Find an expression for E in terms of p. (Again check lecture video or 2 lectore video if you are unsure...) th) Compute the value of Ewhen p - $30 and p - $20. Are these values close to what you got in (c) and (0) Hint: The answer should be yes