Question

The data below represent a demand schedule.

Answer 1

Answer:

The price elasticity of demand between each of the prices are as follows:

(a) Ed = 6.00

(b) Ed = 2.50

(c) Ed = 1.33

(d) Ed = 0.75

Explanation:

Price elasticity of demand (Ed) is given as % change in quantity demanded ÷ % change in price

(a) % change in price = (P2-P1)/P1 × 100 = (25-30)/30 × 100 = -5/30 × 100 = -16.67%

% change in quantity demanded = (Q2-Q1)/Q1 × 100 = (20-10)/10 × 100 = 100%

Ed = 100% ÷ -16.67% = -6.00

Ed = 6.00

(b) % change in price = (20-25)/25 × 100 = -5/25 × 100 = -20

% change in quantity demanded = (30-20)/20 × 100 = 10/20 × 100 = 50%

Ed = 50% ÷ -20% = -2.50

Ed = 2.50

(c) % change in price = (15-20)20 × 100 = -5/20 × 100 = -25%

% change in quantity demanded = (40-30)30 × 100 = 10/30 × 100 = 33.33%

Ed = 33.33% ÷ -25% = -1.33

Ed = 1.33

(d) % change in price = (10-15)/15 × 100 = -5/15 × 100 = -33.33%

% change in quantity demanded = (50-40)/40 × 100 = 10/40 × 100 = 25%

Ed = 25% ÷ -33.33% = -0.75

Ed = 0.75

Answer 2

Answer:

a. Price Elasticity of Demand = 6 (elastic)

b. Price Elasticity of Demand = 2.5 (elastic)

C. Price Elasticity of Demand = 1.3 (elastic)

d. Price Elasticity of Demand = 0.75 (inelastic)

Explanation:

Price elasticity of demand = % change in quantity demanded divided % change in price.

% change in Qty demanded = [(Q2 minus Q1) all divided by Q1 ] *100%

% change in Price = [(P2 minus P1) all divided by P1 ] *100%

a. % change in Qty demanded = [(20 - 10)/10 x 100%] = 100%

   % change in Price = [(25 - 30)/30 x 100%] = -16.67%

   Price Elasticity of Demand = 100% / -16.67% = 6

   This implies the product is very elastic being very far from 1. And this is obvious considering that only a 16.67% drop in price resulted in a 100% increase in Volume

b. % change in Qty demanded = [(30 - 20)/20 x 100%] = 50%

   % change in Price = [(20 - 25)/25 x 100%] = -20%

   Price Elasticity of Demand = 50% / -20% = 2.5

   This implies the product is very elastic being very far from 1. And this is obvious considering that only a 20% drop in price resulted in a 50% increase in Volume

c. % change in Qty demanded = [(40 - 30)/30 x 100%] = 33.3%

   % change in Price = [(15 - 20)/20 x 100%] = -25%

   Price Elasticity of Demand = 33.3% / -25% = 1.3

   This implies the product is elastic being over 1. And this is obvious considering that only a 25% drop in price resulted in a 33.3% increase in Volume

d. % change in Qty demanded = [(50 - 40)/40 x 100%] = 25%

   % change in Price = [(10 - 15)/15 x 100%] = -33.3%

   Price Elasticity of Demand = 25% / -33.3% = 0.75

   This implies the product is inelastic being less than 1. And this is obvious considering that a 33.3% drop in price resulted in only a 25% increase in Volume