9. Consider a price change from $1.0 to $1.5 causes the quantity demanded change from 100 units to 75 units. Set up the table and answer the followings:
A. What is the price elasticity of demand? 10. As you move up along a straight line downward sloping demand curve to higher prices and lower quantities, what happens to the measured elasticity?
11. Demand for a product is unit elastic. At a price of 20.00, 10 units of a product are sold. If the price is increased to $40.00, how many units of the product would be sold?
12. A 10% increase in price of pizza causes a 10% drop in the quantity of pizza sold.
A. What is the price elasticity of pizza in number?
B. What is the name of that elasticity number in word?
B. Will the expenditure on pizza will increase, decrease, or remain the same?
| Price ($) | Quantity Demanded |
|---|---|
| 1.0 | 100 |
| 1.5 | 75 |
Price Elasticity of Demand
The formula for calculating the price elasticity of demand (PED) is:
���=Percentage Change in Quantity DemandedPercentage Change in Price
Using the data from the table:
Percentage Change in Quantity Demanded = 75−100100×100%=−25%
Percentage Change in Price = 1.5−1.01.0×100%=50%
���=−25%50%=−0.5
So, the price elasticity of demand is −0.5.
Measured Elasticity along a Downward Sloping Demand Curve
As you move up along a straight-line downward-sloping demand curve to higher prices and lower quantities, the measured elasticity (usually measured using the midpoint formula) tends to become more elastic (in absolute value). This is because the percentage change in quantity demanded is larger compared to the percentage change in price as you move upwards on the demand curve.
Units Sold with Unit Elastic Demand
If demand for a product is unit elastic, it means that the percentage change in quantity demanded is exactly equal to the percentage change in price. Given that the price increased by 100% (from $20.00 to $40.00), the quantity demanded would decrease by 100% as well. Since the quantity cannot be negative, no units of the product would be sold at a price of $40.00.
Price Elasticity of Pizza
A. The given information states that a 10% increase in price causes a 10% drop in the quantity sold. The price elasticity of demand can be calculated as:
���=Percentage Change in Quantity DemandedPercentage Change in Price=−10%10%=−1
B. This price elasticity number of -1 is known as “unitary elastic” or “unit elastic” demand.
C. When the price elasticity of demand is -1 (unitary elastic), it means that the percentage change in quantity demanded is exactly equal to the percentage change in price. In this case, when the price increases by 10%, the quantity demanded decreases by 10%, resulting in total expenditure remaining unchanged. Therefore, the expenditure on pizza would remain the same.
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