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Question 1:                                        &nbs

Question 1:                                                                                      [LO3] 10 Marks]                                                                                                                                                                                                                                                      
Price elasticity of demand is an essential tool to measure the responsiveness of quantity demanded as the result of changes in the price of the product.
Explain that in detail, you need to use drawing to express your answer

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Answer #1

Price elasticity of demand = %chnage in quantity demanded / %change in price

You can see in the below diagram that on the upper portion of demand curve, demand is elastic where %change in quantity demanded > %change in price while demand is inelastic on the lower portion of demand curve where %change in quantity demanded < %change in price. When demand curve touch X-axix, demand is perfectly inelastic at that point while demand is perfectly elastic when demand curve touch Y-axis.

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