Question

Suppose that the price of an ice cream cone increases from PRs. 60 to PRs. 80 and the amount you buy falls from 12 to 8 cones.
Requirements:
a. Calculate price elasticity of demand in Percentage
b. Interpret the answer
c. What type of elasticity is this i.e. perfectly elastic, perfectly inelastic, unitary elastic,
relatively elastic or relatively inelastic.

Answer 1

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Answer 2

Given :

Initial Price = 60 ( p )

Initial Quantity = 12 ( q )

Change in Price = 80 - 60 = 20 ( ∆P = 20 )

Change in Quantity = 12 - 8 = 4 ( ∆q = 4 )

To Find :

• Calculate Price Elasticity of demand

• Write the type of elasticity

Formula To Find :

${\underline{\boxed{\bf \:{ e = \frac{ Δq }{ Δp } \times \frac{p}{q}}}}}$

• Δq = Change in Quantity

• Δp = Change in Price

• p = Initial Price

• q = Initial Quantity

Solution :

$\to e = \frac{ Δq}{ Δp} \times \frac{p}{q}$

$\to \sf \frac{4}{20} \times \frac{60}{12}$

$\sf \to \: \frac{240}{240}$

$\sf\to \: 1$

$\therefore \bf Price \: Elasticity \: demand(e) \: = 1$

So, Price Elasticity demand = 1 , It is clearly understood that type of elasticity is Unitary Elastic Demand.

Required Answers :

a ) 1

c ) Unitary Elastic ( e = 1 )

MORE :

Percentage Method :

$\to \: e \: = \frac{per. \: change \: in \: quantity \: demanded}{per. \: change \: in \: price}$

$\to \: e = \frac{ \frac{change \: in \: quantity}{initial \: quantity} \times 100 }{ \frac{change \: in \: price}{initial \: price} \times 100 }$

$\to \: e = \frac{\frac{ Δq }{q} \times 100 }{ \frac{ Δp }{p} \times 100}$

$\to \: e = \frac{Δq}{q} \div \frac{Δp}{p}$

$\to \: e = \frac{Δq}{q} \times \frac{p}{Δp}$

$\to{\boxed{ e = \frac{Δq}{Δp} \times \frac{p}{q} }}$