Question

Space limit is one page; graphs are optional.
What does each of the following statements imply about price elasticity of demand?
a. "If the price of saltine crackers goes up by one penny, I will stop buying them altogether."
b. "I will buy just about the same quantity of cigarettes no matter what the price is."
c. "I will spend my entire budget (income) on hamburgers no matter what the price is."
Please use either a graph or a formula to support each of your answers to a, b, and c.

The formula is proportionate change in quantity divided by proportionate change in price and i have come up with the following answers can you please either use a graph or a formula to support the answers to a,b,c.?

A The formula is proportionate change in quantity divided by proportionate change in price completely elastic. Small price change leads to large change in demand

B completely inelastic. No effect on quantity due to price

C completely inelastic. Same reason

Answer 1

a). This statement implies that price elasticity of demand is perfectly elastic. This is because, with a given change in prices, the quantity of goods demanded changes indefinitely. The demand curve is completely flat, parallel to the x-axis. dx/dp = 0

b). This means that cigarette is perfectly inelastic. This means that the demand curve is completely vertical, parallel to the y-axis. dx/dp = infinity

c). This means that hamburgers are unit elastic good. This is because, with any given change in income levels, the quantity of hamburgers consumed changes in the same proportion. dx/dp = 1

A). dX/dP = 0; dX/dP >1

B). dX/dP = infinity ;

C). dX/dP = infinity