Reference no: EM13375416
PROBLEM SET ONE1-PRICE-ELASTICITY OF DEMAND
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P1
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P2
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QD1
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QD2
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I
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II
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III
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IV
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V
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1
|
1
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2
|
10
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5
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|
|
|
|
|
|
2
|
4
|
3
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60
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100
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|
|
|
|
|
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3
|
12
|
20
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100
|
100
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|
|
|
|
|
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4
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3
|
2
|
7
|
7
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|
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5
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0.30
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1.20
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20
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15
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6
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1 1/2
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2.75
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7
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5.5
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|
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|
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|
|
7
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3.5
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2 1/8
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20
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15
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|
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8
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5
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5.000...01
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1x106
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0
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9
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5
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4.9999.....
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10
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1x109
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|
|
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|
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10
|
12
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24
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24
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12
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|
|
|
|
|
|
11
|
13
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26
|
260
|
130
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|
|
|
|
|
|
12
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7
|
16
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32
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24
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|
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|
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|
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13
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7
|
16
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78
|
78
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|
|
|
|
|
|
14
|
39
|
52
|
117
|
104
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|
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|
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|
|
15
|
65
|
91
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1300
|
780
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|
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16
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4
|
5
|
13
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7
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|
|
|
|
|
|
17
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7
|
4
|
16
|
24
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|
|
|
|
|
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18
|
143
|
273
|
520
|
390
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|
|
|
|
|
|
19
|
78
|
91
|
780
|
780
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|
|
|
|
|
|
20
|
91
|
78
|
780
|
780
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|
|
|
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|
Column I - determine the Price-Elasticity of Demand Coefficient. Refer to the Price-ElasticityCoefficient and Formula :
change in quantity demanded change in price
EP= ---------------------------------------- / ----------------------------
sum of quantities demanded / 2 sum of prices / 2
The data in the first four columns represent price (P) and quantity demanded (Qd) in time 1 (before change in price) and time 2 (after change in price) for a specific good. Note that results should be expressed in absolute terms. For example, -1 should be expressed as ¦1¦, as should a positive 1.
Column II - Interpret the results and indicate the type of elasticity which applies (such as Elastic, Inelastic, Perfectly Elastic, Perfectly Inelastic, Unitary) based on how the quantity demanded changed subsequent to a change in price.
Column III - Determine if the good in question would be considered a necessity, a luxury or neither.
Column IV - Indicate,in monetary terms, how much is the change in total revenue or total expenditure (TR = P XQD), from the first price level to the second.
Column V - indicatethe direction of the change, that is, increasing or decreasing (show a + sign for increasing and a - sign for decreasing).
Note: for any monetary result please include the applicable currency symbol ($, €, etc.)