You call your friend, an economics professor, and ask, "What is the price elasticity of demand? What determines it? What is elastic and inelastic demand?"
To really understand it, compute the following price elasticities of demand:
The price of a laptop increases by 20% and there is a 40% drop in the quantity demanded.
The price of a pack of cigarettes increases by 10% and there is a 5% drop in the quantity demanded.
The price of water increases by 15% but there is no drop in the quantity demanded.
Of the above examples, which is more elastic, and which is the least elastic? Why? Answer the following questions:
Why is elasticity an important concept for a business? What if national income went up? How would that affect elasticity?
What is the price elasticity of supply? What determines it?
Compute the following price elasticities of supply:
The price of a hotel room increases by 20%, and the quantity supplied increases by 10%.
The price of health care goes up by 50% , and the quantity supplied increases by an equal amount.
The price of a book increases by 10%, and the quantity supplied increases 20%.
In the above examples, which is more elastic and which is the least elastic? Why?
What kind of supply and demand elasticities would the following goods have, and why?
Now that you are an expert on elasticities, what do you think would be the best time of year to raise prices, and why? What do you think the elasticities are in the flower business? Use graphs and hypothetical tables to support your answer.
Recently Asked Questions
- Please review my Personal Narrative Essay and feel free to make any needed correction. Thanks Have you ever hoped for something? Well, I did; my name is Angel,
- I need the below paraphrased for originality yet still cover the same content. I will provide generous tip afterwards if properly done. Thank you. The U.S.
- In order to fund her retirement, Michele requires a portfolio with an expected return of 0.10 per year over the next 30 years. She has decided to invest in