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Chapter 19: 19.1 Learning objective (page 416)

Calculate price elasticity of demand

Short Answer

Expert verified

The price elasticity of demand concept is explained

Step by step solution

01

Introduction 

The ratio of the percentage change in quantity demanded of a product to the percentage change in price is known as price elasticity of demand. Economists use it to figure out how supply and demand change when the price of a product changes.

02

Calculating price elasticity of demand

Elasticity is calculated using the following formula:

Price Elasticity of Demand=percent change in quantitypercent change in price.
03

Example for calculating price elasticity of demand

Teenagers, minorities, low-income smokers, and casual smokers are particularly sensitive to price changes: for every ten percent increase in the price of a pack of cigarettes, smoking rates decline by roughly seven percent. We obtain by plugging those numbers into the formula

Price Elasticity of Demand=percent change in quantitypercent change in price=-7%10%=-0.7

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Most popular questions from this chapter

Table 19-2 indicates that the short-run price elasticity of demand for tires is 0.9. If an increase in the price of petroleum (used in producing tires) causes the market prices of tires to rise from \(50 to \)60, by what percentage would you expect the quantity of tires demanded to change?

Consider panel (a) of Figure 19-1. Use the basic definition of the price elasticity of demand to explain why the value of the price elasticity of demand is zero for the extremely rare situation of the vertical demand curve.

An increase in the market price of men's haircuts, from \(15per haircut to \)25per haircut, initially causes a local barbershop to have its employees work overtime to increase the number of daily haircuts provided from 35to45. When the $25 market price remains unchanged for several weeks and all other things remain equal as well, the barbershop hires additional employees and provides 65 haircuts per day. What is the short-run price elasticity of supply? What is the long-run price elasticity of supply?

Based solely on the information provided below, characterize the demands for the following goods as being more elastic or more inelastic.

a. A 45-cent box of salt that you buy once a year

b. A type of high-powered ski boat that you can rent from any one of a number of rental agencies

c. A specific brand of bottled water

d. Automobile insurance in a state that requires autos to be insured but has only a few insurance companies

e. A 75-cent guitar pick for the lead guitarist of a major rock band

It is very difficult to find goods with perfectly elastic or perfectly inelastic demand. We can, however, find goods that lie near these extremes. Characterize demands for the following goods as being near perfectly elastic or near perfectly inelastic.

a. Corn grown and harvested by a small farmer in Iowa

b. Heroin for a drug addict

c. Water for a desert hiker

d. One of several optional textbooks in a pass-fail course
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