Answer:
1. Price elasticity of demand
2 & 3. 4.55%
4 & 5. 22.73%
6. 0.2
8. 15.79%
9. 0.56
Explanation:
Given that,
Initial quantity demanded = 220
New quantity demanded = 230
Initial price = $4.40
New price = $3.40
1. This illustrates the price elasticity of demand. Price elasticity of demand is defined as the responsiveness of quantity demanded to any change in the price of the commodity.
2 & 3. Percentage change in quantity demanded:
= [(New quantity demanded - Initial quantity demanded) ÷ Initial quantity demanded] × 100
= [(230 - 220) ÷ 220] × 100
= 0.04545 × 100
= 4.55%
4 & 5. Percentage change in price:
= [(New price - Initial price) ÷ Initial price] × 100
= [($3.40 - $4.40) ÷ $4.40] × 100
= 0.2273 × 100
= 22.73%
6. Price elasticity of demand for cereal:
= Percentage change in quantity demanded ÷ Percentage change in price
= 4.55 ÷ 22.73
= 0.2
7. The price elasticity of demand is comes out to be 0.2 which is less than 1, indicates that quantity demanded is less responsive to changes in the price level.
8 & 9. Given that,
Initial quantity demanded = 210
New quantity demanded = 230
Initial price = $4.10
New price = $3.50
Using the mid point method,
Average price:
= (Initial price + New price ) ÷ 2
= ($4.10 + $3.50 ) ÷ 2
= $3.8
Percentage change in price:
= (New price - Initial price) ÷ Average price
= ($3.50 - $4.10) ÷ $3.8
= 0.1579 or 15.79%
Average quantity demanded:
= (Initial quantity demanded + New quantity demanded ) ÷ 2
= (210 + 230) ÷ 2
= 220
Percentage change in quantity demanded:
= (New quantity demanded - Initial quantity demanded) ÷ Average quantity demanded
= (230 - 210) ÷ 220
= 0.0909 or 9.09%
Price elasticity of demand:
= Percentage change in quantity demanded ÷ Percentage change in price
= 9.09 ÷ 15.79
= 0.56
