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CASE 1: PROJECTING DEMAND AT A HIGHER PRICE POINT ($175)

Price (P) Quantity (Q)

$100 ??
$125 1,500
$150 1,000
$175 ??

Step 1: Price Sensitivity (PS) for any two points/coordinates (P1, Q1, and P2, Q2)

PS = (% Change in Quantity Demanded)/(% change in Price)

= {(Q2 – Q1)/Q1}/{(P2 – P1)/P1}

Step 2: Applying this as we move from $150 to $175

PS = {(Q$175 – 1,000)/1,000}/{($175 – $150)/$150}

= {(Q$175 – 1,000)/1,000}/{0.17}

Rearranging the terms to solve for Q$175:

Q$175 = 1,000 + 170 (PS)

We don’t know the PS at $175 specifically, but we will assume that it’s the same as the PS at the
closest available pair of data points.

Step 3: Price Sensitivity as we move from $125 to $150

PS = {(Q2 – Q1)/Q1}/{(P2 – P1)/P1}

= {(1,000 – 1,500)/1,500}/{(150-125)/125}
= {-0.33}/{0.20}
= -1.67

PS = -1.67 => for every unit change in price (in this case, $1 increase in price), the quantity
demanded falls by 1.67 times.

Step 4: Plugging this value into equation from Step 2

Q$175 = 1,000 + 170 (PS) = 1,000 + 170 (-1.67) = 1,000 – 283.9 = 716.1 =~ 716
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CASE 2: PROJECTING DEMAND AT A LOWER PRICE POINT ($75)

Price (P) Quantity (Q)

$75 ??
$100 2,000
$125 1,500
$150 ??

Step 1: Price Sensitivity (PS) for any two points/coordinates (P1, Q1, and P2, Q2)

PS = (% Change in Quantity Demanded)/(% change in Price)

= {(Q2 – Q1)/Q1}/{(P2 – P1)/P1}

Step 2: Applying this as we move from $100 to $75

PS = {(Q$75 – 2,000)/2,000}/{($75 – $100)/$100}

= {(Q$75 – 2,000)/2,000}/{-0.25}

Rearranging the terms to solve for Q$75:

Q$75 = 2,000 - 500 (PS)

We don’t know the PS at $75 specifically, but we will assume that it’s the same as the PS at the closest
available pair of data points.

Step 3: Price Sensitivity as we move from $125 to $100

PS = {(Q2 – Q1)/Q1}/{(P2 – P1)/P1}

= {(2,000 – 1,500)/1,500}/{(100-125)/125}
= {0.33}/{-0.20}
= -1.67

PS = -1.67 => for every unit change in price (in this case, $1 increase in price), the quantity
demanded falls by 1.67 times.

Step 4: Plugging this value into equation from Step 2

Q$75 = 2,000 - 500 (PS) = 2,000 – 500 (-1.67) = 2,000 + 835 = 2,835