Question

if the price of a product increases from R200 to R250 then demand falls from R450 to 300 units.Calculate PED and determine the degree of elasticity​

Answer 1

Answer:

Price elasticity of demand = 0.5

Explanation:

A price elasticity of demand can be defined as a measure of the responsiveness of the quantity of a product demanded with respect to a change in price of the product, all things being equal.

Mathematically, the price elasticity of demand is given by the formula;

$Price \; elasticity \; of \; demand = \frac {Percentage \; change \; in \; price}{Percentage \; change \; in \; demand}$  

Given the following data;

Old price = $200

New price = $250

Old quantity demanded = 450

New quantity demanded = 300

To find the price elasticity of demand (PED);

First of all, we would determine the percentage change in price and demand.

$Percentage \; change \; in \; price = \frac {250 - 200}{200} * 100$

$Percentage \; change \; in \; price = \frac {50}{200} * 100$

$Percentage \; change \; in \; price = \frac {5000}{200}$

Percentage change in price = 25%

$Percentage \; change \; in \; demand = \frac {450 - 300}{300} * 100$

$Percentage \; change \; in \; demand = \frac {150}{300} * 100$

$Percentage \; change \; in \; demand = \frac {15000}{300}$

Percentage change in demand = 50%

Now, we can find the price elasticity of demand;

Substituting into the formula, we have;

$Price \; elasticity \; of \; demand = \frac {25}{50}$

Price elasticity of demand = 0.5



Therefore, the degree of elasticity is said to be inelastic because the price elasticity of demand (PED) is less than 1.