Elasticity of Demand Worksheet
Use the formula above to calculate values of price elasticity of demand for all the situations below. Make sure to show your calculations.
Price Quantity Revenue
Initial New Initial New
% change in
quantity demanded % change in price Elasticity of
Demand Initial New
30 35 90 30
50 80 110 80
210 230 70 54
PRICE ELASTICITY OF DEMAND % change in Q demand
% change in price
PERCENTAGE CHANGE new number-old number X 100
average
Revenue Price X Quantity
60 85 140 125
In each case identify whether you would describe it as elastic / unit elastic / inelastic
1. 2. 3. 4.
Has revenue increased or decreased in each case?
1. 2. 3. 4
We’ll also calculate the percentage change in quantity demanded and the percentage change in price for each scenario. Additionally, we’ll identify whether the demand is elastic, unit elastic, or inelastic, and determine whether revenue has increased or decreased.
Scenario 1
Initial Price = $30 New Price = $35 Initial Quantity = 90 New Quantity = 30
% Change in Quantity Demanded = ((30 – 90) / 90) * 100 = -66.67% % Change in Price = ((35 – 30) / 30) * 100 = 16.67%
PED = (-66.67%) / (16.67%) ≈ -4.00
Analysis
In this case, the absolute value of PED is greater than 1, indicating that demand is elastic. When the price increased by 16.67%, the quantity demanded decreased significantly by 66.67%.
Scenario 2
Initial Price = $50 New Price = $80 Initial Quantity = 110 New Quantity = 80
% Change in Quantity Demanded = ((80 – 110) / 110) * 100 = -27.27% % Change in Price = ((80 – 50) / 50) * 100 = 60%
PED = (-27.27%) / (60%) ≈ -0.45
Analysis
In this case, the absolute value of PED is less than 1, indicating that demand is inelastic. When the price increased by 60%, the quantity demanded decreased by a smaller proportion, 27.27%.
Scenario 3
Initial Price = $210 New Price = $230 Initial Quantity = 70 New Quantity = 54
% Change in Quantity Demanded = ((54 – 70) / 70) * 100 = -22.86% % Change in Price = ((230 – 210) / 210) * 100 = 9.52%
PED = (-22.86%) / (9.52%) ≈ -2.40
Analysis
In this case, the absolute value of PED is greater than 1, indicating that demand is elastic. When the price increased by 9.52%, the quantity demanded decreased significantly by 22.86%.
Scenario 4
Initial Price = $60 New Price = $85 Initial Quantity = 140 New Quantity = 125
% Change in Quantity Demanded = ((125 – 140) / 140) * 100 = -10.71% % Change in Price = ((85 – 60) / 60) * 100 = 41.67%
PED = (-10.71%) / (41.67%) ≈ -0.26
Analysis
In this case, the absolute value of PED is less than 1, indicating that demand is inelastic. When the price increased by 41.67%, the quantity demanded decreased by a smaller proportion, 10.71%.
Now, let’s analyze the impact on revenue and describe each scenario:
Scenario 1
Elastic demand; when price increased, quantity demanded decreased significantly. Revenue has likely decreased because the percentage decrease in quantity demanded is larger than the percentage increase in price.
Scenario 2
Inelastic demand; when price increased, quantity demanded decreased moderately. Revenue has likely increased because the percentage increase in price is larger than the percentage decrease in quantity demanded.
Scenario 3
Elastic demand; when price increased, quantity demanded decreased significantly. Revenue has likely decreased because the percentage decrease in quantity demanded is larger than the percentage increase in price.
Scenario 4
Inelastic demand; when price increased, quantity demanded decreased moderately. Revenue has likely increased because the percentage increase in price is larger than the percentage decrease in quantity demanded.
In summary, the elasticity of demand plays a crucial role in determining the impact on revenue. When demand is elastic, price increases lead to decreased revenue, whereas inelastic demand can lead to increased revenue with price increases.
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