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

We are given the following:

P	Q
$ 100.00	2500
$   50.00	10000

• Now elasticity is negative because of the inverse relation between Qty and price
• If the absolute value of the PED is >1 which is true in this case then the demand is elastic. If PED = 1, then it is unitary elastic and if PED<1 then inelastic
• Following is the graph showing the same analysis, we can see that the Y-axis shows that the difference between the two prices is smaller than the difference between the two quantities on the X axis. This implies that the demand is elastic. Had it been the same then the differences would have been equal and had it been inealstic then the differences would have been the opposite and the curve would have been a lot steeper which is very flat in this case

We get the following graph: