Question

Suppose your demand schedule for e-books is the following: Price Quantity demanded (income = € 15,000)...

Suppose your demand schedule for e-books is the following:

Price

Quantity demanded

(income = € 15,000)

Quantity demanded

(income = € 22,000)

€ 10

48

55

€ 12

40

50

€ 14

32

45

€ 16

24

40

€ 18

16

35

Calculate your price elasticity of demand as the price of e-books increases from €10 to €12 if (i) your income is €15,000, and (ii) your income is €22,000. Is it elastic, inelastic or unit elastic?

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Homework Answers

Answer #1

i. Calculation of price elasticoty of demand :

Price increase from $10 to $12

Price elasticity of demand = Proportionate change in quantity demanded/ Proportionate change in price

= ((Change in Quantity/ Quantity)*100)/((Change in price/ Price)*100)

=((40-48)/48)*100/ ((12-10)/10)*100= -0.83

Since, elasticity is less than 1 so it is inelastic.

When income is 15000,

Price elasticity of demand=

((50-55)/50)*100/ ((12-10)/10)*100= 0.45

It is also relatively more inelastic.

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