Answer:
a. 5 (relatively elastic demand)
b. 2.33 (relatively elastic demand)
c. 1.50 (relatively elastic demand)
d. 1 (unitary elasticity demand)
Explanation:
P=price. QD=quantity demand
a. P1=40 QD1=10
P2=35 QD2=15
Price elasticity demand = (%change in QD ) ÷ (%change in P)
% change in QD= (Qd2-Qd1) ÷Qd1 ×100
(15-10) ÷10 =( 5÷10) ×100
=50%
%change in price =( P2-P1) ÷ P1 ×100
( 35-40) /40 ×100
=10%
Price elasticity of demand for question a. = 50% ÷ 10% = 5
b. P1=35. QD=15
P2=30. QD=20
Price elasticity demand = (%change in QD) ÷ (%change in P)
% change in QD= (Qd2-Qd1) ÷Qd1 ×100
(20-15) ÷15 =( 5÷15) ×100
=33.33%
%change in price =( P2-P1) ÷ P1 ×100
( 30-35) /35 ×100
=14.29%
Price elasticity of demand for question b.
= 33.33% ÷ 14.29%
=2.33
c. P1=30. QD=20
P2=25. QD=25
Price elasticity demand = (%change in QD) ÷ (%change in P)
% change in QD= (Qd2-Qd1) ÷Qd1 ×100
(25-20) ÷20 =( 5÷20) ×100
=25%
%change in price =( P2-P1) ÷ P1 ×100
(25-30) /30 ×100
=16.67%
Price elasticity of demand for question b.
= 25% ÷ 16.67%
=1.50
d. P1=25. QD=25
P2=20. QD=30
Price elasticity demand = (%change in QD) ÷ (%change in P)
% change in QD= (Qd2-Qd1) ÷Qd1 ×100
(30-25) ÷25 =( 5÷25) ×100
=20%
%change in price =( P2-P1) ÷ P1 ×100
( 20-25) /25 ×100
=20%
Price elasticity of demand for question b.
= 20% ÷ 20%
=1.00
Note : negative signs are neglected when calculating price elasticity.
