PROBLEM SET 4 - PRICE-ELASTICITY OF DEMAND

PROBLEM SET 4 - PRICE-ELASTICITY OF DEMAND

	P1 ($)	P2 ($)	QD1	QD2	I	II	III	IV	V
1	7	21	10	30
2	5	3	40	90
3	12	20	100	100
4	3	2	7	7
5	0.30	1.20	20	15
6	1 1/2	2.75	8	15.5
7	1.60	2 1/8	75	50
8	5	5.000…01	1x106	0
9	5	4.9999…..	10	1x109
10	12	24	24	12
11	13	26	130	65
12	7	16	32	24
13	156	182	1560	1560
14	39	52	117	104
15	65	91	1300	780
16	4	5	13	7
17	7	4	16	24
18	143	273	520	390
19	14	32	125	125
20	91	78	780	780

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

change in quantity demanded change in price

EP = ---------------------------------------- ∕ ----------------------------

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 a change in price) and time 2 (after a change in price) for a specific good. ** Note that for full credit, the coefficient results must be expressed in absolute terms. For example, -1 should be expressed as │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 and including the applicable currency symbol ($, €, etc.), how much is the change in total revenue (TR = P X QD), or total expenditure from the first price level to the second.

Column V - indicate the direction of the change, that is, increasing or decreasing (show ↑ for increasing and show ↓ for decreasing).

**NOTE : You MUST submit manual calculations supporting your results for the first 6 rows. You may scan or take pictures of the same and include as attachments with your submission.