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Percentage Price Elasticity of Demand

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Suppose the own price elasticity of demand for good X is -3, its income elasticity is 1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is -4. Determine how much the consumption of this good will change if:

Instructions: Enter your answers as percentages. Include a minus (-) sign for all negative answers.

a. The price of good X decreases by 5 percent.

percent

b. The price of good Y increases by 8 percent.

percent

c. Advertising decreases by 4 percent.

percent

d. Income increases by 4 percent.

percent

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Solution Preview

a. Price elasticity of demand = % change in Q / % change in P = -3
if price decreases by 1%, quantity will increase by 3%
therefore, if price decreases by 5%, quantity will increase by ...

Solution Summary

Price elasticity of demand is the responsiveness of quantity demanded to a change in price. Solution answers multiple questions on this topic with basic formulae and calculations shown.

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Price Elasticity of Demand for Paint: Supply and demand from a microeconomics perspective

Suppose you are a painter, and the price of a gallon of paint increases from $3.00 a gallon to $3.50 a gallon. Your usage of paint drops from 35 gallons a month to 20 gallons a month. Perform the following:

1. Compute the price elasticity of demand for paint and show your calculations.
2. Decide whether the demand for paint is elastic, unitary elastic, or inelastic.
3. Explain your reasoning and interpret your results.

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