Question

The table below shows monthly individual consumer demand schedule for gasoline. Without calculating the price elasticity of demand coefficients find out on which portion of the curve demand is elastic and on which portion it is inelastic. Prove the answers with corresponding calculations in the blank table column below (5 points).

Points	Price/gallon ($)	Qd (gallons)	Corresponding Calculations
A	6	20
B	5	38
C	4	54
D	3	72
E	2	95
F	1	120

Portion AB (underline the appropriate answer): elastic, inelastic, unit-elastic

Portion BC (underline the appropriate answer): elastic, inelastic, unit-elastic

Portion CD (underline the appropriate answer): elastic, inelastic, unit-elastic

Portion DE (underline the appropriate answer): elastic, inelastic, unit-elastic

Portion EF (underline the appropriate answer): elastic, inelastic, unit-elastic

If Samsung cuts the price of its 128GB USB flash drive from $120 to $90 and, as a result, its daily quantity demanded goes up from 32,000 to 48,000 units, then what would be the price elasticity of demand for this product? Provide the full interpretation of this calculated price elasticity of demand coefficient. (5 points)

Answer 1

a) Price elasticity of demand = Percentage change in QD/Percentage change in Price

=[Q2-Q1/(Q2+Q1/2)] / [P2-P1/(P2+P1/2)]

Point AB = [38-20/(38+20/2)]/[5-6/(5+6/2)] = [18/24]/[-1/5.5] = -4.14 = Elastic

Point BC = 54-34/(54+34/2) / 4-5/(4+5/2) = 20/46 / -1/4.5 = -1.95 =Elastic

Point CD = 72-54/(72+54/2) / 3-4/(3+4/2) = 18/63 / -1/3.5 = -1= Unitary Elastic

Point DE = 95-72/(95+72/2) / 2-3/(2+3/2) = 23/83.5 / -0.4 = -0.68 = Inelastic

Point EF = 120-95/(120+95/2) / 1-2/(1+2/2) = 25/107.5 / -1/1.5 = -0.03 = Inelastic

b) Price elasticity of demand:

=[48000-32000/(48000+32000/2)] / [90-120/(90+120/2)]

=[16000/40000] / [-30/105]

=0.4/0.2857

=1.40

As the price elasticity is greater than 1 so price elasticity of demand for USB flash drive is elastic and so decreasing the price will result in an increase in quantity demanded and an increase in total revenue.