91Ó°ÊÓ

• Elastic demand indicates the quantity demanded as a response to changes in price in a more than proportional manner.

Price elasticity of demand=

percentage change in the quantity demanded of a good or service/percentage change in the price.

Given equation,

P = 2/Q (the demand curve)

At Q=5

P= 2$÷$5

=0.4

At Q=4

P = 2$÷$4

=0.5

As price increases, the quantity demanded decreases.

$÷$Price elasticity using the formula from percentage method,

percentage change in the Quantity = $â–³$in Quantity $÷$initial quantity $×$100, ($â–³$Q= Q₁-Q)

= 0.5$-$0.4$÷$0.4 $×$100

= 25%

percentage change in the Price = $â–³$in Price /initial price $×$100, ( $â–³$P= P₁-P)

= 4-5 $÷$5$×$100

= -20 %

E_d = % $△$in Quantity demanded $÷$% $△$in price

= 25 $÷$20

= - 1.25 %

The price elasticity in moving from a quantity of 5 to

4 is - 1.25,

Given equation,P = 2/Q (the demand curve)

At P=9

After putting values in equation

9= 2/Q

Q= .22

At P=8

After putting values in equation

8=2\Q

Q=.25

Price elasticity using the formula from percentage method,

percentage change in the Quantity = $â–³$in Quantity$÷$initial quantity $×$100, ( $â–³$Q= Q₁-Q)

= 0.25 -0.22 $÷$0.22 $×$100

= 13 %

percentage change in the Price = $â–³$in Price $÷$initial price $×$100, ($â–³$P= P₁-P)

= 8-9 $÷$9 $×$100

= -11 %

E_d = % $△$in Quantity demanded $÷$% $△$in price

= 13 $÷$11

= - 1.18

The price elasticity in moving from a quantity of 9 to

a quantity of 8 is - 1.18.

Price elasticity is not expected to be the same for both cases because the percentage change in price and quantity is different in both cases.