Calculating the price elasticity of demand: A step-by-stepguide
Suppose that during the past year, the price of a virtual reality headset fell from $4,650 to $4,430. During the same time period, consumer sales increased from 445,000 to 614,000 headsets.
Calculate the elasticity of demand between these two price–quantity combinations by using the following steps. After each step, complete the relevant part of the table with the appropriate answers. (Note: For decreases in price or quantity, enter values in the Change column with a minus sign.)

To calculate the price elasticity of demand, we follow the steps outlined below, applying the formula for price elasticity of demand:

\[
\text{Price Elasticity of Demand (PED)} = \frac{\% \text{Change in Quantity Demanded}}{\% \text{Change in Price}}
\]

We'll break this process down step by step:

### Step 1: Calculate the change in quantity demanded

\[
\Delta Q = Q_2 - Q_1
\]

Where:
- $ Q_1 = 445,000 $ (initial quantity)
- $ Q_2 = 614,000 $ (new quantity)

\[
\Delta Q = 614,000 - 445,000 = 169,000
\]

### Step 2: Calculate the percentage change in quantity demanded

\[
\% \Delta Q = \left(\frac{\Delta Q}{Q_1}\right) \times 100
\]

\[
\% \Delta Q = \left(\frac{169,000}{445,000}\right) \times 100 \approx 37.98\%
\]

### Step 3: Calculate the change in price

\[
\Delta P = P_2 - P_1
\]

Where:
- $ P_1 = 4,650 $ (initial price)
- $ P_2 = 4,430 $ (new price)

\[
\Delta P = 4,430 - 4,650 = -220
\]

### Step 4: Calculate the percentage change in price

\[
\% \Delta P = \left(\frac{\Delta P}{P_1}\right) \times 100
\]

\[
\% \Delta P = \left(\frac{-220}{4,650}\right) \times 100 \approx -4.73\%
\]

### Step 5: Calculate the price elasticity of demand

\[
\text{PED} = \frac{\% \Delta Q}{\% \Delta P}
\]

\[
\text{PED} = \frac{37.98}{-4.73} \approx -8.03
\]

### Step 6: Interpret the result

The price elasticity of demand is approximately $-8.03$. Since the absolute value of elasticity is greater than 1, the demand for virtual reality headsets is **elastic**, meaning that the

Calculating the price elasticity of demand: A step-by-step guide. Suppose that during the past year, the price of a virtual reality headset fell from $4,650 to $4,430. During the same time period, consumer sales increased from 445,000 to 614,000 headsets. Calculate the elasticity of demand between these two price–quantity combinations by using the following steps. After each step, complete the relevant part of the table with the appropriate answers. (Note: For decreases in price or quantity, enter values in the Change column with a minus sign.)

Learn how to calculate the price elasticity of demand for virtual reality headsets with a detailed step-by-step solution. This example uses a price decrease from $4,650 to $4,430 and a sales increase from 445,000 to 614,000 units. Understand key economic concepts like percentage change and elasticity of demand. Suitable for college-level economics students.

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