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1/20/2015
Economicshelpdesk
Mark Austin
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Question 1. Price of good X rises from $20 to $30 per unit. Consequently, its demand fails
by 20 units and becomes 100 units >Determine price elasticity of demand.
Solution. Given
P=$20
P1=$30
Q = 20units
Q1
P= $10
ep
=100 units
Q=120
Q
=P .
P
Q
units
20
10
20
120
1
3
= 0.33
Price($)
Total expenditure($)
40
30
(b)
Price($)
Total outlay($)
40
40
(c)
Price($)
Total expenditure($)
40
50
Solution: it is a case of eD <1 or inelastic demand since total expenditure rises with a
rise in price.
Question 3. Originally, a product was selling for $10 and the quantity demanded was
1.000 units. The product price changes to $14 And as a result the quantity demanded
changes to 500 units. Calculate the price elasticity
Solution:
P = $10
Q=1,000 units
P1=$14
eD=
P
Q
500
4
10
1000
5
4
= 1.25
Question 5.
eD=
5
2
Q
P
Q
P
= -2
=5
.
P
Q
= -2 x
5/2
5
= -2
5
2
1
5
= [-1] =1
Question 6. Let eD = -0.4 . By what percentage the quantity demanded goes down if
the price of the good increase by 4%?
Solution:
eD =
|-04| =
0.4 x 4 = 1.6
% fall i aquantity