Price Elasticity of Demand Concepts

Front

Calculate the price elasticity of demand (PED) when the price increases from $10 to $12 and quantity demanded decreases from 100 to 80 units.

Back

PED = (Change in Quantity Demanded / Original Quantity Demanded) / (Change in Price / Original Price) = (-20 / 100) / (2 / 10) = -1.0

Front

Is the demand elastic, inelastic, or unitary when the price increases from $10 to $12 and quantity demanded decreases from 100 to 80 units?

Back

Unitary elastic (PED = -1.0)

Front

Calculate the PED when the price increases from $50 to $60 and demand falls from 1,000 to 800 units.

Back

PED = (Change in Quantity Demanded / Original Quantity Demanded) / (Change in Price / Original Price) = (-200 / 1000) / (10 / 50) = -1.0

Front

How could the information about PED help the company make future pricing decisions when the price increases from $50 to $60 and demand falls from 1,000 to 800 units?

Back

Understanding PED helps the company determine how responsiveness customers are to price changes, guiding future pricing strategies.

Front

Calculate the PED when the demand for petrol decreases by 5% when price rises by 25%.

Back

PED = (Change in Quantity Demanded / Original Quantity Demanded) / (Change in Price / Original Price) = (-5 / 100) / (25 / 100) = -0.2

Front

Explain two reasons why the demand for petrol is likely to be inelastic.

Back

1. Petrol is a necessity for many consumers. 2. There are few substitutes available for petrol.

Front

Calculate the expected percentage change in quantity demanded for Product A (PED = 0.8) when the price increases by 10%.

Back

Expected change = PED * Change in Price = 0.8 * 10% = -8%.

Front

Calculate the expected percentage change in quantity demanded for Product B (PED = 1.5) when the price increases by 10%.

Back

Expected change = PED * Change in Price = 1.5 * 10% = -15%.

Front

Which product’s total revenue will increase and which will decrease when the price of both goods is increased by 10%?

Back

Product A's total revenue will increase (inelastic demand), while Product B's total revenue will decrease (elastic demand).

Front

Calculate the PED from the sales data: Price $20, Quantity demanded 1,000; Price $25, Quantity demanded 800.

Back

PED = (Change in Quantity Demanded / Original Quantity Demanded) / (Change in Price / Original Price) = (-200 / 1000) / (5 / 20) = -1.0