Answer to Question #312301 in Economics of Enterprise for Adhu

Question

In each of the following examples, first calculate the PED and then decide if the PED is elastic,

inelastic, perfectly elastic, perfectly inelastic or unitary elastic.

a. The price of a product falls from $8 to $6, causing demand to extend from 10,000 to

12,500.

b. Demand contracts from 500 to 400 when price rises from $40 to $42.

c. Demand extends from 2,000 to 2,800 when price falls from $20 to $18.

d. Price rises from $15 to $30 but demand stays unchanged at 5,000.

e. An increase in price from $80 to $90 and as a consequence, a decrease in quantity

demanded from 400 to 300. 

Answer 1

a) PED= $\frac {\Delta Q}{\Delta P}× \frac{P}{Q}$

$\frac {(12500-10000)}{(8-6)}× \frac{8}{10000}= -1$

This is unitary elastic

b) $PED=\frac {\Delta Q}{\Delta P}× \frac{P}{Q}$

$\frac {-100}{2}× \frac{40}{500}= -4$

This is perfectly elastic

c) $\frac {800}{-2}× \frac{20}{2000}= -4$

This is perfectly elastic

d) $\frac {0}{15}× \frac{15}{5000}= 0$

This is perfectly inelastic

e) $\frac {-100}{10}× \frac{80}{400}= -8$

This is perfectly elastic