1. Price Elasticity of Demand. Before: P=1, Qd = 4; After: P =3; Qd =0.
Given your answer to #1, is this demand curve elastic or inelastic over this range? Why?
P1 = 1 QD1 = 4
P2 = 3 QD2= 0
Price Elasticity of demand = %age change in Quantity demanded / %age change in Price
%age change in quantity demanded = QD2 - QD 1 / QD1 * 100
= 0 - 4/ 4 * 100 = -100%
%age change in Price = P2 - P1 / P1 * 100
= 3 - 1 / 1 * 100 = 200%
Now PED = 100% / 200% = 0.5
As the proportionate change in Qunatity demanded is less than Proportionate change in Price the demand curve is said to be inelastic as Price elasticity of demand for good is below 1
1. Price Elasticity of Demand. Before: P=1, Qd = 4; After: P =3; Qd =0. Given...