# Price Elasticity of Demand

You must post a memo which you explain the factors that contribute to the elasticity of goods. You must also incorporate a real-life example of price elasticity of demand, and discuss how it impacts the economy.

* Discuss in detail the influences of price elasticity of demand.

* Explain the factors that contribute to the elasticity of goods.

* Discuss how these factors influence consumers to purchase goods or services.

* Explain how price elasticity of demand relates to microeconomics.

* Give a real-life example of a good that shows elasticity of demand.

* Incorporate the real-life example into the memo.

* Explain if the good is elastic, inelastic, or unitarily elastic. Why?

https://brainmass.com/economics/short-and-long-run-cost-functions/price-elasticity-of-demand-316686

#### Solution Preview

You must post a memo which you explain the factors that contribute to the elasticity of goods. You must also incorporate a real-life example of price elasticity of demand, and discuss how it impacts the economy.

* Discuss in detail the influences of price elasticity of demand.

As per economics.about.com, The Price Elasticity of Demand measures the rate of response of quantity demanded due to a price change.

The formula for the Price Elasticity of Demand (PEoD) is:

PEoD = (% Change in Quantity Demanded)/ (% Change in Price)

Hence we must understand the following rules:

* If PEoD > 1 then Demand is Price Elastic (Demand is sensitive to price changes)

* If PEoD = 1 then Demand is Unit Elastic

* If PEoD < 1 then Demand is Price Inelastic (Demand is not sensitive to price changes)

* Explain the factors that contribute to the elasticity of ...

#### Solution Summary

Response explains price elasticity of demand

Economics

Problems:

1)For each of the following cases, calculate the arc price elasticity of demand and state whether demand is elastic, inelastic or unit elastic

a) when the price of milk increases from $2.25 to $2.50 per gallon, the quantity demanded falls from 100 gallons to 90 gallons

b) when price of paper book falls from $7.00 to $6.50, quantity demanded rises from 100 to 150

c) when the rent on apartments rises from $500 to $550, the quantity demanded decreases from 1000 to 950 2)

2. For each of the following cases, calculate the point price elasticity of demand and state whether demand is elastic, inelastic or unit elastic. The demand curve is given by

Qd=5000-50Px

a) The price of product is $50

b) The price of product is $75

c) The price of product is $25

3. For each of the following cases, what is the expected impact on the total revenue of the firm. Explain your answer

a) Price elasticity of the demand is known to be -0.5, and the firm raises the price by 10%

b) Price elasticity of the demand is known to be -2.5, and the firm lowers the prices by 5%

c) Price elasticity of the demand is known to be 1, and the firm raises the prices by 1%

d) Price elasticity of the demand is known to be 0, and the firm raises the prices by 50%

4.The demand curve is given by

Qd=500-2Px

a) What is the total revenue function

b) The marginal revenue function is MR=250-Q

Graph the total revenue function, Demand curve and marginal revenue function c) c) At what price is revenue is maximised, What is the revnue at that point

d) Identify the elastic and inelastic portions of demand curve