Your Painter Essay Example | Topics and Well Written Essays - 250 words

Your Painter - Essay Example Now the unit price of the commodity rises to P2 from P1 and at that price the quantity of that commodity declines to Q2 (This follows from the generally accepted law of demand that a rise in price of a commodity will mostly result in the decline in the demand of the same) (Mankiw, 2008). If ?P denotes the change in price or rise in the same then ?P = P1 – P2; similarly if ?Q refers to the change in the quantity demanded or decline in the same then ?Q = Q1- Q2. Now if Ed refers to the price elasticity of demand then Ed = (?Q/Q1)/ (?P/P1). In the given economic problem, on the quantity demanded side, Q1 = 35 gallons of paint, Q2 = 20 gallons a month. On the other hand the price of the paint was initially $3.00/gallon that is P1 = $3.00 and the price of the paint raised to $3.50/gallon, hence P2 = $3.50. Following the paragraph above, ?Q = (35 - 20) gallons = 15 gallons. Similarly ?P = $(3 – 3.5) = - $0.5. If now we put all these data into the equation that we have mention ed for price elasticity of demand we will find – Ed= (?Q/Q1)/ (?P/P1) = ?Q/Q1 X P1/?P = 15/35 X 3/-0.5 = - 3/7 X 6 = - 2.57 (approximated) Here the price elasticity of demand has been determined at – 2.57, that is less than – 1. Following the price elasticity of demand we classify goods as elastic or inelastic. If the price elasticity of demand is 0 then any rise in the price will not affect the quantity consumption of the commodity.