Question

• Calculate the PED for a particular style of Tom's shoes if there is a price decrease from $100 to $50 and the quantity demanded increases from 2,500 to 10,000 pairs. (Create/ upload a diagram to help clarify your answer).
• Is this product elastic or inelastic? With references to the relevant determinants of PED, does this answer support what we've learned about elasticity and what we might expect for a pair of Tom's shoes? Briefly explain your answer.

Answer 1

Answer to the question:

Using the following formula we can find the price elaticity of demand:

where,

P0= 100

P1=50

?P=P0-P1=50

Q0=2500

Q1=10000

?Q=Q0-Q1=-7500

Thus,

Thus, the price elasticity of demand is |Ep|=6, which is greater than the 1. That means the product is elastic. A fall in the price by 50% caused the demandd for the product to increase by 300% (from 2500 to 10000).

In the diagram, DD is the demand curve. We can see that the slope of the curve is greater than unity (1) and thus, we can say that elasticity of the demand of this good is more than 1 and the product is price elastic.

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