CHECK YOUR UNDERSTANDING
DEMAND ELASTICITY
1. For which of the following products
each case.
a) chicken
b) cigarettes
c) soft drinks
d) Coca-Cola
e) pencils
f) public transportation
g) haircuts
would demand be elastic? Inelastic? State why in
h) salt
i) travel services
j) newspapers
k) milk
l) restaurant meals
m) rent
n) prescription drugs
2. Calculate the price elasticity of demand coefficient for a product if the increase in price
from $0.50 to $0.70 causes quantity demanded to fall from 400 to 300 units. Does this
represent an elastic or an inelastic demand?
3. Calculate the price elasticity of demand coefficient using the following information. A
store sells 10 units of product X at a price of $5 per unit. If the store raises its price to $8
per unit, the quantity demanded falls to 5 units. Does this represent an elastic or inelastic
demand?
4. The same product can have different elasticities depending on the price range. Calculate
the following elasticity of demand coefficients and state whether each indicates an elastic
or inelastic demand.
a) Originally, the price increases from $0.55 to $0.60 while the quantity demanded
falls from 300 to 290.
b) Then, over a long period of time, the price increases from $1.95 to $2.00 while the
quantity demanded falls from 20 to 10.
c) What is the relationship between elasticity of demand and price?
5. Why does price elasticity of demand increase over time?