ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Elastic
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Inelastic
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Unit Elastic
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Perfectly Inelastic
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Detailed explanation-1: -Let’s calculate the arc elasticity following the example presented above: Midpoint Qd = (Qd1 + Qd2) / 2 = (40 + 60) / 2 = 50. Midpoint Price = (P1 + P2) / 2 = (10 + 8) / 2 = 9. % change in qty demanded = (60 – 40) / 50 = 0.4.
Detailed explanation-2: -If a demand of good changes by 60% due. to 40% change in price, the elasticity of. demand is. (A) 0.5.
Detailed explanation-3: -On a linear demand curve, the price elasticity of demand varies depending on the interval over which we are measuring it. For any linear demand curve, the absolute value of the price elasticity of demand will fall as we move down and to the right along the curve.
Detailed explanation-4: -The price elasticity of supply = % change in quantity supplied / % change in price. When calculating the price elasticity of supply, economists determine whether the quantity supplied of a good is elastic or inelastic.