Question

What can you conclude about the price elasticity of demand in each of the following
statements?
a. "The pizza delivery business in this town is very competitive. I'd lose half my customers if I
raised the price by as little as 10%."
b. "I owned both of the two Jerry Garcia autographed lithographs in existence. I sold one on
eBay for a high price. But when I sold the second one, the price dropped by 80%."
c. "My economics professor has chosen to use the Krugman/Wells textbook for this class. I have
no choice but to buy this book."​

Answer 1

Answer:

Given the above statement that if the price is raised by 10%, %, the quantity demanded decreases by 50%. Using formula of price elasticity Price elasticity of demand = (% change in quantity demanded) / (% change in price) = -50/10 = -5 As, price elasticity of demand is (5) is greater than one, it is elastic. Note: the negaive sign can be ignored as price and quantity demanded is inversely related. b. “I owned both of the two Jerry Garcia autographed lithographs in existence. I sold one on eBay for a high price. But when I sold the second one, the price dropped by 80%. Sol: Given that on selling the second book, the price dropped by 80%. To find the percentage change in quantity demanded, we use the midpoint method % change in quantity demanded = [(2 – 1)/ (2 + 1)/2] = 1 / 1.5 * 100 = 66.67% Price elasticity of demand = 66.67/(-80) = (-0.83) As, price elasticity of demand is (0.83) is less than one, it is inelastic. c . “My economics professor has...