Please help understanding elasticity in application to real life situations, instead of just theoretical.

1) If own price elasticity for demand is -0.25, what percentage would you change the price of a good to change consumption of this good by 10%? Would this change in price be an increase or decrease? Is this demand elastic, inelastic or unit elastic and why? Would the company who produces the good total revenue increase or decrease and why?

2) Which of these would have more elastic demand and why?
a) A good in an intensely competitive market vs. the only firm in the market
b) Gasoline when your tank is empty vs. gas when your tank is full
c) Salt vs. rent
d) Bottled spring water vs. water from the faucet.

Solution Preview

1) Price Elasticity of Demand (PEoD) is:
PEoD = (% Change in Quantity Demanded)/(% Change in Price) .
Applying the above formula:
0.25= 10%/(%Change in price)
% Change in Price= 10/.25
=40%
Hence price will change by 40%
If there is decrease in quantity demanded there is increase in price.
Is this demand elastic, inelastic or unit elastic and why?
When PEoD is more than 1 then it is the case of highly elastic demand and when it is less than 1 then it ...

Solution Summary

The solution determines price elasticity in real life situations.

1. Answer the following questions based on the accompanying diagram
a. How much would the firm's revenue change if it lowered price from $12 to $10? Is demand elastic or inelastic in this range?
b. How much would the firm's revenue changed if it lowered price from $4 to $2? Is demand elastic or inelastic in this range?
c. Wha

DQ1: Elasticity. Find the reallifeelasticity in the attached power point slides. Based on the elasticity of demand, discuss one of the products:
a) Is it elastic, unit elastic (~ -1), or inelastic?
b) If something happened to reduce supply and resulted in a 10% increase in price, what would the % change be to quantity?
c)

Suppose the price of apples rises from $3 a pound to $3.45 and your consumption of apples drops from 30 pounds of apples a month to 21 pounds of apples. Calculate your priceelasticity of demand of apples. What can you say about your priceelasticity of demand of apples? Is it elastic, inelastic, or unitary elastic?

Consider a service that you buy frequently. (Can use pedicure 2 times per month at $50 for graph and calculation)
a. Suppose that the price was 5% lower and all other factors do not change. How much more would you buy each year?
b. Using this information, calculate the own-priceelasticity of your demand.

1. A market consists of two individuals. Their demand equations are Q1 = 16-4P and Q2 = 20-2P respectively.
a. What is the market demand equation?
b. At a price of $2, what is the point priceelasticity for each person and for the market?

Suppose the price of apples rises from $3.50 a pound to $4.00 and your consumption of apples drops from 30 pounds of apples a month to 20 pounds of apples. Calculate your priceelasticity of demand of apples. What can you say about your priceelasticity of demand of apples? Is it Elastic, Inelastic, or Unitary Elastic? Be sure t

Quantity PriceElasticity
Demanded
100 $ 5
80 $10
60 $15
40 $20
20 $25
10 $30
1. Determine the priceelasticity of demand at each quantity demanded using the formula % chg in QD divided by % chg in price.
2. Redo #1 using price changes of $

Suppose the price of apples rises from $3.50 a pound to $4.00 and your consumption of apples drops from 30 pounds of apples a month to 20 pounds of apples. Calculate your priceelasticity of demand of apples. What is the priceelasticity of demand of apples? Is it Elastic, Inelastic, or Unitary Elastic?