Question

Answer the questions below by using the following demand schedule:

Price	Quantity Demanded	Quantity Supplied
$13	585	1305
$12	635	1130
$11	665	980
$10	695	930
$9	705	840
$8	730	730
$7	750	630
$6	780	480
$5	830	360
$4	930	260

• Use the Excel template to calculate and plot the graph of the elasticity of demand between one point and the next. That is, plot A-to-B, B-to-C etc. Upon plotting the graph, determine the price elasticity of each value. For instance, it could be price elasticity, price inelastic, or unit elastic.

• Using the same Excel template, calculate the arc elasticity of supply between one point and the next. That is, plot A-to-B, B-to-C, etc. Upon plotting the graph, determine the price elasticity of each value. For instance, it could be price elasticity, price inelastic, or unit elastic.

Answer 1

(1)

Point price elasticity (Ed) = % Change in quantity demanded (QD) / % Change in price

When |Ed| > 1, demand is elastic.

When |Ed| < 1, demand is inelastic.

When |Ed| = 1, demand is unit elastic.

Price Demand Supply 250 350 450 550 650 750 850 Quantity 950 1050 1150 1250 1350

Elasticity table:

Point	Price	QD	% Change in QD	% Change in Price	Ed	Demand is:
A	13	585
B	12	635	8.55%	-7.69%	-1.11	Elastic
C	11	665	4.72%	-8.33%	-0.57	Inelastic
D	10	695	4.51%	-9.09%	-0.50	Inelastic
E	9	705	1.44%	-10.00%	-0.14	Inelastic
F	8	730	3.55%	-11.11%	-0.32	Inelastic
G	7	750	2.74%	-12.50%	-0.22	Inelastic
H	6	780	4.00%	-14.29%	-0.28	Inelastic
J	5	830	6.41%	-16.67%	-0.38	Inelastic
K	4	930	12.05%	-20.00%	-0.60	Inelastic

(2)

Arc elasticity of supply (Es) = [Change in quantity supplied (QS) / Average QS] / (Change in price / Average price)

When Es > 1, supply is elastic.

When Es < 1, supply is inelastic.

When Es = 1, supply is unit elastic.

Elasticity table:

Point	Price	QS	Change in QS	Average QS	Change in Price	Average Price	Es	Supply is:
A	13	1305
B	12	1130	-175	1217.5	-1.00	12.5	1.80	Elastic
C	11	980	-150	1055.0	-1.00	11.5	1.64	Elastic
D	10	930	-50	955.0	-1.00	10.5	0.55	Inelastic
E	9	840	-90	885.0	-1.00	9.5	0.97	Inelastic
F	8	730	-110	785.0	-1.00	8.5	1.19	Elastic
G	7	630	-100	680.0	-1.00	7.5	1.10	Elastic
H	6	480	-150	555.0	-1.00	6.5	1.76	Elastic
J	5	360	-120	420.0	-1.00	5.5	1.57	Elastic
K	4	260	-100	310.0	-1.00	4.5	1.45	Elastic