Question

a. Calculate price elasticity given the following information. Is the curve elastic, inelastic or unitary elastic?...

a. Calculate price elasticity given the following information. Is the curve elastic, inelastic or unitary elastic? Original Quantity:9800 lbs of coffee New Quantity: 6500 lbs of coffee Original Price: $10.99/lb New Price: $9.99/lb b. (6 pts) Given the elasticity calculated in part a, will the seller increase or decrease their revenue if they increase the price of coffee? c. (8 pts) Explain the determinants of elasticity.

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Answer #1

The price elasticity of demand is calculatted by the following formula

Price elasticity of demand=

percentage change= new quantity- old q/ old q*100 new p-old p/old p*100

The price elasticity of demand is and this means an increase in the price of the commodity will decrease the revenue for the seller.

The determinants of the price elasticity of the demand are

1. The availabilty of substitutes- If more clsoe substitutes are available for the commodity it is demand should be elastic and if the close substitutes are less, the elasticity will be less.

2. The proportion of consumer's income- If the consumer spent greater amount of income on the good , the greater will be the elasticity and viceversa.

3. The number of uses of commodity.

4. complementarity between goods

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