Ekek
1. (a) The price elasticity of demand measures the responsiveness of the quantity demanded to a change in price.
(b) Give the formula for price elasticity of demand. See formula in question 4 below.
2. (a) As -0.2 = %∆Q / %∆P, therefore ∆Q = -0.2 *10% = - 2.0 %;
(b) As -1.6 = %∆Q / %∆P, therefore ∆Q = -1.6 *10% = - 16.0 %;
3. In each of the following pairs, tick which of the two items is likely to have the more elastic demand. Give reasons for your answer.
(a) Petrol (all brands) BP petrol
There is no close substitute for petrol. If the price of petrol went up, the quantity demanded would fall only slightly, as people would still need fuel for their cars. If the price of Esso petrol went up, however (assuming that the prices of other brands had not changed), people could easily switch to other brands.
(b) Holidays abroad Bread
People could easily substitute cheaper holidays, at home or abroad, if the price of foreign holidays rose. The substitutes for bread are less close, and people spend a relatively small proportion of their income on bread. A rise in the price of bread, therefore, is likely to result in only a small fall in the quantity demanded.
(c) Salt Clothing
People spend such a small proportion of their income on salt that they could easily afford to pay a higher price – and would probably not even be aware that the price had risen. Do you know the price of a drum of salt?
4. The formula for price elasticity of demand is as follows:
Proportionate (or percentage) change in quantity demanded
Proportionate (or percentage) change in price
This can be summarised as:
(Qd / mid Qd ( (P / mid P
The following table shows the quantity of a product demanded at two different prices:
|P ($) |Qd |
|16 |25 |
|14 |35 |
(a) Calculate the proportionate change
(b) Give the formula for price elasticity of demand. See formula in question 4 below.
2. (a) As -0.2 = %∆Q / %∆P, therefore ∆Q = -0.2 *10% = - 2.0 %;
(b) As -1.6 = %∆Q / %∆P, therefore ∆Q = -1.6 *10% = - 16.0 %;
3. In each of the following pairs, tick which of the two items is likely to have the more elastic demand. Give reasons for your answer.
(a) Petrol (all brands) BP petrol
There is no close substitute for petrol. If the price of petrol went up, the quantity demanded would fall only slightly, as people would still need fuel for their cars. If the price of Esso petrol went up, however (assuming that the prices of other brands had not changed), people could easily switch to other brands.
(b) Holidays abroad Bread
People could easily substitute cheaper holidays, at home or abroad, if the price of foreign holidays rose. The substitutes for bread are less close, and people spend a relatively small proportion of their income on bread. A rise in the price of bread, therefore, is likely to result in only a small fall in the quantity demanded.
(c) Salt Clothing
People spend such a small proportion of their income on salt that they could easily afford to pay a higher price – and would probably not even be aware that the price had risen. Do you know the price of a drum of salt?
4. The formula for price elasticity of demand is as follows:
Proportionate (or percentage) change in quantity demanded
Proportionate (or percentage) change in price
This can be summarised as:
(Qd / mid Qd ( (P / mid P
The following table shows the quantity of a product demanded at two different prices:
|P ($) |Qd |
|16 |25 |
|14 |35 |
(a) Calculate the proportionate change