1.

Qd = 13500 – 500P
Qs =3000 + 200P
For Equilibrium Qd =Qs
13500 – 500P = 3000 + 200 P
10500 = 700P
P = 10500/700
P = 15

Qd = 13500 – 500(P)
Qd = 13500 – 500(15)
Qd = 6000

2. No of Units, U1 = 10
Price, P1 = 5
No of Units, U2 = 12
Price, P2 = 4

%Change in Units = U2-U1/U1 = ((12-10)/10)*100 = (2/10)*100 = 20

%Change in Price = (P2-P1)/P1 = ((4-5/5)*100) = (-1/5)*100 = 20

Price Elasticity = 1 (unitary price elastic)

3. Price Elasticity of demand = %Change in Quantity / %change in price.

% Change in Quantity = (120-100/100)*100
=20%
% change in price = 10%
Price Elasticity of demand = 20/10 = 2 (greater than 1, hence elastic)

4. Price, P1 = 10
Quantity demand increases by = 50%
Price P2 = 8

Change in price = 8-10 = -2

% change in price = (-2/10)*100 = -20%
Elasticity of demand = |%change in Quantity demanded / %change in price|
Elasticity of demand = |50/(-20)|
Elasticity of demand = 2.5 (elastic)

5. Units 1, U1 = 80
Price P1 = 4
Units 2, U2 = 100
Price P2 = ?

Price Elasticity = 1
1 = |((U2-U1/U1)*100)/(P2-P1)/4)*100)|
|(P2-4)/4 |= |100-80/80|
4 – P2 =| (20/80)*4|
 4 - P2 = (¼)*4
P2 = 3

6. Units 1, U1 = 40
Price 1, P1 = 5
Price Elasticity = 1.5
Units 2, U2= ?
Price 2, P2 = 4

Price Elasticity = |((U2-U1/U1)*100)/((P2-P1/P1)*100)|

1.5 = (U2-40/40)/(4-5/5)
1.5(1/5) = U2-40/40
0.3 = U2-40/40
12 = U2-40
U2 = 52

7. Elasticity of demand = 0.9

Quantity 1, Q1 = 4
Price P1 = 1.5
Quantity 2, Q2= ?
Price P2 = 1

Elasticity of demand = |((Q2-Q1/Q1)*100)/((P2-P1/P1)*100)|

0.9=(Q2-4/4)/(1-1.5)/1.5)
0.9*((1-1.5)/1.5))= Q2-4/4
0.3 = Q2-4/4
1.2 = Q2 – 4
Q2 = 5.2 or approx. 5 pizzas he will order.

8. Price Elasticity = 1
Units 1, U1 = 60
Units 2, U2 = ?
Price falls by 10%

1 = |((U2-U1)/U1)*100/10|
1 = (U2 – 60/60)10
0.1 = U2 – 60/60
6 = U2 – 60
U2 = 66

9. Price P1 = 3
Price P2 = 5
Total no of cars C1 = 1200
Total no of cars C2 = 900

% change in price = (P2-P1/P1)*100

% change in price = (5-3/3)*100 = 66.67
 % change in cars = (C2-C1/C1)*100
% change in cars = (900-1200/1200)*100 = -25%

Price Elasticity of demand = %Change in price/%change in cars

Price Elasticity of demand = 25/66.67 = 0.375

Revenue 1 = 3*1,200 = 3,600

Revenue 2 = 5*900 = 4,500

10. Price 1, P1 = 3
Quantity 1, Q1 = 10
Price 2, P2 = 3.75
Quantity 2, Q2 = 8

% change in Price = (P2-P1/P1)*100

% change in Price = 3.75-3/3*100 = 25%

% change in Quantity = (Q2 – Q1/Q1)*100

% change in Quantity = (8-10/10)*100 = 20%

Price Elasticity of demand = % change in Quantity / % change in Price

Price Elasticity of demand = 20/25 = 0.8 (inelastic)

11. Demand function Qd = 100 – 0.5P

Price elasticity of pen when price is 10 per unit.
Qd = 100 – 0.5P
M = Dq/Dp = -0.5

At P = 10, Qd = 100 – 0.5(10) = 95

Elasticity = -0.5*Price/Quantity
Elasticity = -0.5*10/95 = 0.052 (inelastic)

12. P = 100 – Q
M = DP/Dq = -1
Price elasticity when Price is 60

60 = 100 – Q
Q = 40
Elasticity = -1*(60)/(40)
Elasticity = 3/2 = 1.5 Inelastic

13. Qx = 15000 – 3000Px + 7Y + 300Pc

a) Price elasticity of DSIL
DQx/DPx = -3000
Qx = 15000 – 3000(5) + 7(6000) + 300(6)
Qx = 42000 + 1800
Qx = 43800
 Price Elasticity = |-3000*(5)/43800|
Price Elasticity = 0.34246

b) Income elasticity:
Qx = 15000 – 3000Px + 7Y + 300Pc
DQx/Dy = 7
Income Elasticity = 7 * 6000/43800
Income Elasticity = 0.9589, normal good

c) Cross Elasticity:
Qx = 15000 – 3000Px + 7Y + 300Pc
dQx/DPc = 300
Cross Elasticity = 300*(6/43800)
Cross Elasticity = 0.0410, inferior good

14) Determinants of Price Elasticity of demand:

1. Nature of commodity:

Commodities are classified as necessities, luxuries and comforts.

(i) A necessity that has no close substitute (salt, edible oil, rice etc.) will have an inelastic
demand because its consumptions cannot be postponed. Moreover, consumers purchase
almost a fixed amount of a necessity per unit time whether the price” is somewhat higher or
lower.

(ii) Demand of luxuries is relatively more elastic because consumption of luxuries (TV sets,
iPhones, etc.) can be dispensed with or postponed when their prices rise.

(iii) Comforts have more elastic demand than necessities and less elastic in comparison to
luxuries.

2. Range of substitutes:

A commodity has elastic demand if there are close substitutes of it. A small rise in the price
of a commodity having close substitute will force the buyers to reduce the consumption of the
commodity in favor of substitutes.

A lower price will attract the buyers of the other substitutes to purchase the commodity. If no
substitutes are available, demand for goods tends to be inelastic. Demand for salt is highly
inelastic because it has no substitute.

3. Number of uses of a commodity:

Larger the number of uses of a commodity, the higher is its elasticity of demand. The demand
in each single use of such commodities may be inelastic, but the demand in all uses taken
together is elastic.
For example, gold is used for money purposes. If its price rises, it will not be used in less
important uses and the quantity demanded will fall appreciably.
Contrary to this, the bangles for women have no other use and, therefore, their demand is
relatively inelastic.

4. Possibility of postponement of purchase:

If the use or purchase of a commodity can be postponed for sometimes, then the demand of
such commodity will be elastic.

For example, if cement, bricks, wood and other building materials become costlier, people
will postpone the construction of houses. Therefore, price elasticity of building materials will
be high.

5. Importance of the commodity in consumers budget:

The demand for such goods is inelastic on which a small portion of income is spent, the j
items like toothpaste, shoe polish, electric bulbs have inelastic demand as we spend a small
portion of our income on these items.

If the prices of these items rise, the consumer budget is not affected much. On the other hand,
clothes and durable items take away a large portion of the income. Therefore, the demand for
such commodities is elastic.

6. Range of prices:

At a very high or very low range of prices, demand tends to be inelastic Demand for high
priced commodities come from only the rich people who give little importance to price.

A change in the price of high-priced commodities will not generally affect the demand of rich
consumers.

On the other hand, low priced commodities are either necessities or a small part of income is
spent an them. Therefore, their demand is inelastic.

7. Income level:

People with high incomes are less affected by price changes than people with low incomes. A
rich man will not curtail his consumption of vegetables, milk, fruits even if their prices rise
significantly and he will continue to purchase the same amount as before.

But a poor man cannot do so. Thus, the distribution of national income has an important
bearing on the elasticity of demand

8. Time:

In the short-run the demand is inelastic while in the long-run demand is elastic. The reason is
that in the long-run consumer can change their habits and consumption pattern.
9. Joint demand:

Elasticity of demand for a commodity is also influenced by the elasticity of its jointly
demanded commodities.

If the demand for pen is inelastic then the demand for ink will be inelastic. Generally, the
elasticity of jointly demanded goods is inelastic.

15) Why we take percentage of value while calculating Elasticity?

Is the elasticity the slope?

It is a common mistake to confuse the slope of either the supply or demand curve with its
elasticity. The slope is the rate of change in units along the curve, or the rise/run (change in y
over the change in x). For example, in Figure 1, each point shown on the demand curve, price
drops by $10 and the number of units demanded increases by 200. So the slope is –10/200
along the entire demand curve and does not change. The price elasticity, however, changes
along the curve. Elasticity between points A and B was 0.45 and increased to 1.47 between
points G and H. Elasticity is the percentage change, which is a different calculation from the
slope and has a different meaning.

Figure 1. Calculating the Price Elasticity of Demand. The price elasticity of demand is
calculated as the percentage change in quantity divided by the percentage change in price.

When we are at the upper end of a demand curve, where price is high and the quantity
demanded is low, a small change in the quantity demanded, even in, say, one unit, is pretty
big in percentage terms. A change in price of, say, a dollar, is going to be much less
important in percentage terms than it would have been at the bottom of the demand curve.
Likewise, at the bottom of the demand curve, that one-unit change when the quantity
demanded is high will be small as a percentage.

So, at one end of the demand curve, where we have a large percentage change in quantity
demanded over a small percentage change in price, the elasticity value would be high, or
demand would be relatively elastic. Even with the same change in the price and the same
change in the quantity demanded, at the other end of the demand curve the quantity is much
higher, and the price is much lower, so the percentage change in quantity demanded is
smaller and the percentage change in price is much higher. That means at the bottom of the
curve we’d have a small numerator over a large denominator, so the elasticity measure would
be much lower, or inelastic.

As we move along the demand curve, the values for quantity and price go up or down,
depending on which way we are moving, so the percentages for, say, a $1 difference in price
or a one unit difference in quantity, will change as well, which means the ratios of those
percentages will change. Hence it is preferred to have the ratio of percentage in the elasticity
calculation.

Reference: https://opentextbc.ca/principlesofeconomics/chapter/5-1-price-elasticity-of-
demand-and-price-elasticity-of-supply/