Question

For each of the following rows, use the beginning and ending quantity and the beginning and ending price to calculate the price elasticity of demand. Is this an elastic or an inelastic product? What would you recommend be done with the price in each instance?

	Beg Q	End Q	Beg P	End P
1.	120	140	10	8
2.	10	4	10	12
3.	50	100	100	50
4.	400	300	75	100
5.	25	25	10	100
6.	87	0	100	101

Using your knowledge of elasticity, answer the following questions where possible.

7. My sales increased by 100 when I cut my price by $4. What is my elasticity?
8. My sales increased by 10 % when I cut my price by 5 %. What is my elasticity?
9. I cut my price by 20% to increase sales but they did not go up at all. What gives?
10. I sell corn. Should I raise my price?
11. My elasticity is 2.0 and I am contemplating a price increase of 20%. If my sales are 1000 right now, how many sales could I expect to gain or lose?
12. My elasticity is .6. What should I do with my price?
13. My sales went up by 100 when I cut my price from $18 to $16. What is my elasticity?

Answer 1

Ans 1.)

For 2^nd, 4^th and 6^th combinations of price and quantity , the quantity demanded decreases as the price increase.Thus, the demand is price elastic.

For 1^st, 3^rd combination of price and quantity demanded, the demand is elastic as the quantity demanded increases when the price decrease.

For 5^th combination of price and quantity, the quantity demanded does not change with the change in price.Thus, the demand is price inelastic.

Ans 2.) Sales increased by 100 units when price were cut by $4.

For this part, we need to have the information regarding the initial price and quantity.

Ans 3.)

Elasticity = (% change in quantity)÷(% change in price)

= 10 ÷ (-5)

Elasticity = -2

Ans 4.) As the price were cut by 20%, but the sales did not increase.

This means that the demand is price inelastic.