Based on the answer provided, is the demand for paint is elastic, unitary elasti

Question

Based on the answer provided, is the demand for paint is elastic, unitary elastic, or inelastic. Explain your reasoning and interpret your results.

The formula for price elasticity is:
E = dQ/dP * P/Q, where d means "change in" and the price and quantity are calculated at the midpoint.

Substitute the values given in the problem:
E = (35-20)/(3.50-3.00)*((3.50+3.00)/2)/((35+20)/2)
E = 15/0.50 * 3.25/27.5
E = 3.545

Explanation / Answer

The demand for paint is extremely elastic. It's very rare for items to have elasticity greater than 2, but then again elasticity varies greatly from point to point on the same demand function. Meaning, if Q were at 350 instead of 35, elasticity would be a far smaller number, staying consistent with the shape of a demand curve. It's simply a definition. When E > 1, the item is considered elastic. When E = 1, the item is considered unitarily elastic When E < 1, the item is considered inelastic. When E = 0, the item is perfectly inelastic (think lifesaving medicines).

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