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Price Elasticity of Demand and Supply

Six (6) questions on Elasticity of Demand and Supply

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Elasticity Computations

1. Suppose that 50 units of a good are demanded at a price of $1 per unit. A reduction in price to $0.25 results in an increase in quantity demanded to 70 units. Show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in the price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve?

Given:
Q1 = 50
Q2 = 70
P1= 1
P2 = .20

What percentage would a 10 percent rise in the price reduce the qd?

Ep = Q2-Q1/P2-P1 = 70-50/.20-1 =20/.80 = -0.25
A 10% increase in price would result to 25% reduction in the quantity demanded.

2. Fill in the blanks.

P Q Price Elasticity Total Revenue
9 1 9
8 2 -1 16
7 3 -1 21
6 4 -1 24
5 5 -1 25
4 6 -1 24
3 7 -1 21
2 8 -1 16

3. Categories of price elasticity of demand

a. An Ep of 2.5 is Relatively elastic. The firm's ...

Solution Summary

The solution computes for the price elasticity of demand and supply. The step-by-step solutions are attached in a 3-page document file.

$2.19