a. How do you calculate a commodity's price elasticity of demand? b. If a commodity's elasticity...

a. How do you calculate a commodity's price elasticity of demand?

b. If a commodity's elasticity is -1.25, is its price elasticity elastic or inelastic? Explain. What does that imply about the relative changes in price and quantity?

Solutions

Expert Solution

1) Price elasticity of demand is the measure of the percentage change in the quantity demanded in response to some percentage change in corresponding prices of that particular commodity. Law of demand states the negative relationship between price and quantity , other things remain the same .

Accordingly, this inverse relationship between the price and demand is expressed by negative(-) sign in the formula of elasticity of demand as

Price elasticity of demand (Ed) = (-) ℅ Change in Quantity demand/ ℅ Change in Price

2) Now if the commodity's elasticity is -1.25 . When the percentage change in the quantity demanded of a commodity is greater than the percentage change in price, it is termed as elastic demand. Same in our case , elasticity is greater than 1 , so it is said to be elastic demand .

This means that , Percentage change in Quantity > Percentage change in Price .

So this means that when a percentage change in price happens , then percentage change in Quantity is more than as compared to percentage change in price .

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

a. How do you calculate income elasticity?b. If a commodity's income elasticity is 1, is...

a. How do you calculate income elasticity?b. If a commodity's income elasticity is 1, is it necessity or luxury good? Explain. What does that imply about the relative changes in income and quantity?

What do you mean by price elasticity of demand?

What do you mean by price elasticity of demand? Explain factors determining the price elasticity of demand.

Define price elasticity of demand. b. How would the "elasticity of umbrellas" be defined? Assume that...

Define price elasticity of demand. b. How would the "elasticity of umbrellas" be defined? Assume that the elasticity of umbrellas relates the number of days of rain to the number of times you use an umbrella

what is price elasticity of demand? what do you understand by that? how many types of...

what is price elasticity of demand? what do you understand by that? how many types of elasticity are there? explain elaborately with example

Q1. Price elasticity of demand measures A) how responsive suppliers are to price changes. B) how...

Q1. Price elasticity of demand measures A) how responsive suppliers are to price changes. B) how responsive sales are to changes in the price of a related good. C) how responsive quantity demanded is to a change in price. D) how responsive sales are to a change in buyers' incomes. Q2. Suppose the value of the price elasticity of demand is -3. What does this mean? A) A 1 percent increase in the price of the good causes quantity demanded...

Given the following information, calculate the price elasticity of demand and use it to project how...

Given the following information, calculate the price elasticity of demand and use it to project how the consumer's quantity demanded and expenditure will change in response to a future price increase. Conclude by identifying what your findings suggest about how effective taxing this good would be for a government trying to raise revenue or change behavior. % change (growth rate) = (value new - value old) / value oldElasticity = |% change in quantity / % change in price| Milk...

An inferior good has a ______________________. Positive price elasticity of demand b) Negative price elasticity of...

An inferior good has a ______________________. Positive price elasticity of demand b) Negative price elasticity of demand c) Negative Income elasticity of demand d) Positive income elasticity of demand A movement down the demand curve is a(n): A decrease in quantity demanded b) an increase in quantity demanded c) an increase in demand d) a decrease in demand When a market is at equilibrium, There are no shortages or surpluses b) the price is a fair price c) all consumers...

Determine the price elasticity of demand, the cross-price elasticity of demand or the income elasticity in...

Determine the price elasticity of demand, the cross-price elasticity of demand or the income elasticity in the following scenarios a. Consider the market for coffee. Suppose the price rises from $4 to $6 and quantity demanded falls from 120 to 80. What is price elasticity of demand? Is coffee elastic or inelastic? b. John’s income rises from $20,000 to $22,000 and the quantity of hamburger he buys each week falls from 2 pounds to 1 pound. What his income elasticity? Is hamburger...

Calculate the cross elasticity of demand for B when the price of A decreases from $7.50 to $6.50. Are A and B complements or substitutes?

The following table shows the relationship between the price of product A and the quantity demanded for products A and BPrice of A ($)Quantity demanded for A (kg)Quantity demanded for B (kg)Consumers’ income ($)6.01002020006.5903018007705016007.540701400810851200Calculate the cross elasticity of demand for B when the price of A decreases from $7.50 to $6.50. Are A and B complements or substitutes?

The price elasticity of the demand for gasoline is .02. The price elasticity of demand for...

The price elasticity of the demand for gasoline is .02. The price elasticity of demand for gasoline at Joe’s service station is 1.2. Explain what might account for the difference in elasticities.

Subjects