Question

1. The following data is from the demand for chocolate cookies:
Producer reduces the price of some cookies from 12 to 10 cents. Find out that the quantities sold increased from 210 to 250 units:

a) Calculate the price elasticity of cookies.







b) Present the graph; Indicate if it is Price Elasticity of Demand or Supply.






c) if it is elastic, inelastic or unitary.






d) If the price elasticity coefficient in varieties is (- 3.0). What happens if I lower the price by 15%? What will be the quantity of cookies demanded?

Answer 1

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a) Price elasticity = % change in qty demanded/ % change in price

= (250-210)/210 divided by (10-12)/12

= -1.14

b) It is price elasticity of Demand because there is a negative relationship between quantity and price shown by the negative sign in the value above.

The equation of the graph using the two pints is equal to y=-1/20x+45/2 which is given above

c)The absolute value of elasticity is 1.14 which indicates that change in quantity demanded is greater than the change in price. Hence it is an elastic demand curve.

d)Now given elasticity =3. Using the formula we know, change in quantity= elasticity*change in price

= -3*15

= -45%

Thus quantity demanded will fall by 45%