problem set one1-price-elasticity of

Question

PROBLEM SET ONE1-PRICE-ELASTICITY OF DEMAND

	P1	P2	QD1	QD2	I	II	III	IV	V
1	1	2	10	5
2	4	3	60	100
3	12	20	100	100
4	3	2	7	7
5	0.30	1.20	20	15
6	1 1/2	2.75	7	5.5
7	3.5	2 1/8	20	15
8	5	5.000...01	1x106	0
9	5	4.9999.....	10	1x109
10	12	24	24	12
11	13	26	260	130
12	7	16	32	24
13	7	16	78	78
14	39	52	117	104
15	65	91	1300	780
16	4	5	13	7
17	7	4	16	24
18	143	273	520	390
19	78	91	780	780
20	91	78	780	780

 

Column I - determine the Price-Elasticity of Demand Coefficient.  Refer to the Price-ElasticityCoefficient and Formula :

 

            change in quantity demanded                        change in price

E_P=  ----------------------------------------      /  ----------------------------

           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 XQ_D),  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.)