ELASTICITY OF DEMAND

PROBLEM SET ONE1-PRICE-ELASTICITY OF DEMAND

Column I - determine the Price-Elasticity of Demand Coefficient.  Refer to the Price-ElasticityCoefficient and Formula :

            change in quantity demanded                        change in price

E_P=  ----------------------------------------      ∕  ----------------------------

           sum of quantities demanded / 2                      sum of prices / 2 

The data in the first four columns represent price (P) and quantity demanded (Qd) in time 1 (before change in price) and time 2 (after change in price) for a specific good.   Note that results should be expressed in absolute terms.  For example, -1 should be expressed as │1│, as should a positive 1.

Column II – Interpret the results and indicate the type of elasticity which applies (such as Elastic, Inelastic, Perfectly Elastic, Perfectly Inelastic, Unitary) based on how the quantity demanded changed subsequent to a change in price.

Column III – Determine if the good in question would be considered a necessity, a luxury or neither. 

Column IV – Indicate,in monetary terms, how much is the change in total revenue or total expenditure (TR = P XQ_D),  from the first price level to the second.

Column V - indicatethe direction of the change, that is, increasing or decreasing  (show a   +   sign for increasing and a   –   sign for decreasing).

Note:   for any monetary result please include the applicable currency symbol ($, €, etc.)