Elasticity of Demand

Price elasticity of demand measures:

• the responsiveness of the quantity demanded of a good to a change in income

• the responsiveness of the quantity demanded of a good to a change in consumers’ preferences

• the responsiveness of the quantity demanded of a good to a change in price

• the reduction in the quantity demanded of a good when the price is reduced

Suppose that the price of a bus ticket rises from $2.75 to $3.75 and the number of tickets sold falls from 9000 to 7800. The price elasticity of demand, in absolute term, is

• 0.464

• 1.000

• –0.527

• –1.000

• zero

Using the midpoint formula, what would be the price elasticity of demand for a basketball if the number of basketballs fell from 7000 to 3500 per week after its price increased from £60 to £150?

• -0.33

• -1.67

• -0.6

• -3

Suppose the price of a bus ticket rises from £2.50 to £2.75 and the number of tickets sold falls from 10 000 to 8500. The price elasticity of demand is:

• elastic

• unitary elastic

• perfectly elastic

• inelastic

• perfectly inelastic

The price elasticity of demand for a vertical demand curve is:

• perfectly elastic

• perfectly inelastic

• unitary elastic

• elastic

• inelastic

If demand is ELASTIC,

• it reacts a lot to price changes

• it doesn't react to price changes

• price change leads to an equal change in demand

Select a product with ELASTIC demand

• petrol

• make up

• electricity bill

Unitary Elastic Demand

• demand reacts a lot to price changes

• change in price leads to an equal change in demand

• demand doesn't react to price changes

INELASTIC demand

• demand reacts a lot to price changes

• change in price leads to equal change in demand

• demand doesn't react a lot to price changes

INELASTIC demand example:

• bread

• soft drink

• make up