-Price Elasticity of Demand-

-Price Elasticity of Demand-

By Mai Asi

Multiple Choice

What characteristic is likely to make a demand for a product elastic?

• necessity

• habitual consumption

• cheaper goods

• has close substitute

Multiple Choice

Demand for a product is inelastic. What effect will a fall in price have?

• Total revenue will rise

• Total revenue will fall

• Demand will not change

• Demand will change by a greater percentage

Multiple Choice

The price of the product rises from $60 to $90. This causes demand to contract from 800 to 600. What type of price elasticity does this product have over this price range?

• Elastic

• Inelastic

​Other Degrees of Elasticity

​Perfectly elastic demand

change in price causes a complete change in quantity demanded.

(competition between wheat farmers)​

​Perfectly inelastic demand

quantity demanded does not change when the price changes

(PED is zero)​

Unit Elasticity of Demand

Percentage change in price results in an equal percentage change in quantity demanded

( PED: 1 )​

Multiple Choice

Based on the demand curve for good Q, it can be determined that the good has ______________.

• Few susbtitutes

• Many substitutes

• no substitutes

• Only one substitute

Multiple Choice

If price elasticity of demand of the product equals 1, as its price rises the _______________.

• Total revenue does not change.

• Quantity demanded does not change

• Total revenue increases

• Quantity demanded increases

Multiple Choice

In which of the following cases, would a firm's total revenue increase?

• price increase

  demand is elastic

• price decrease

  demand is elastic

• price decrease

  demand is inelastic

Open Ended

The 2014 crop of Arabica beans, used to make coffee, was reduced by a drought which occurred in Brazil in early 2014. The reduction in production pushed up the price of coffee. The higher price influenced the quantity of coffee demanded and the demand for its substitutes and complements. The demand for coffee tends to be price-inelastic. A change in the quantity and quality of exports of coffee abroad influences Brazil’s current account of the country’s balance of payments.

QUESTION: Explain two reasons why demand for a product may be price-inelastic

The product may lack substitutes

Demand for the product may be addictive

The product may take up only a small part of income

The purchase of the product cannot be delayed

Draw

The 2014 crop of Arabica beans, used to make coffee, was reduced by a drought which occurred in Brazil in early 2014. The reduction in production pushed up the price of coffee. The higher price influenced the quantity of coffee demanded and the demand for its substitutes and complements. The demand for coffee tends to be price-inelastic. A change in the quantity and quality of exports of coffee abroad influences Brazil’s current account of the country’s balance of payments. Using a demand and supply diagram, analyse the effect of a rise in the price of coffee on the market for tea.