11. Price Elasticity of Demand – Introduction and Calculation
1. Fill in the missing words.
Price elasticity of demand is a measure of the responsiveness of quantity ________________ to a change in
________________.
Complete the formula for price elasticity of demand: % ______________________a
%
2. Calculations
2.1 If the price of an MP3 player rises by 10% and the demand for MP3 players falls by 10%
a) Calculate the price elasticity of demand for MP3 players.
b) What does this suggest about the price elasticity of demand?
2.2 If the price of a good falls by 16% but the demand rises by only 8%.
a) The good can be described as? Relatively price elastic/Price inelastic
b) Calculate the price elasticity of demand.
2.3 Julian raises the price of his rugby shirts from £50 to £55. He knows that his price elasticity of demand is -6.
a) What will the change in demand be?
b) What does this suggest about the price elasticity of demand?
2.4 Adrian raises the price of his coffee from £1.00 to £1.25. If the price elasticity of demand is -2,
a) What will the change in demand be?
b) What does this suggest about the price elasticity of demand?
2.5 Harry knows that his price elasticity of demand is -4. He wants to raise his sales by 20%. What does he need to
do to the price of his goods?
2.6 Sophie raises the price of her designer shirts from £80 to £100 and as a result sales fall from 40 to 36.
a) Calculate the price elasticity of demand
b) What does this suggest about the price elasticity of demand?
3. Identify the price elasticity of demand for each of the following diagrams
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11. Answers: Price Elasticity of Demand – Worksheet 1
Definition: Price elasticity of demand is a measure of the responsiveness of quantity demanded to a change in price
Formula:
% ∆ in Quantity demanded
% ∆ in Price
1.
a.
b.
-1
Unitary elasticity
a.
b.
Relatively price inelastic
–½
a.
Fall of 60% -60%
= -6
+10%
Relatively price elastic
2.
3.
b.
4.
a.
b.
5.
Fall of 50% -50%
= -2
+25%
Relatively price elastic
Lower his price by 5%
+20%
- 5%
=-4
6.
a.
b.
– 0.4
-10%
= - 0.4
+25%
Relatively price inelastic
Diagram A = Perfectly elastic
Diagram B = Relatively inelastic
Diagram C = Unitary elasticity
Diagram D = Relatively elastic
Diagram E = Perfectly inelastic
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