In an African country with large areas of tropical desert the price elasticity of demand for salt is highly inelastic. This will result in greater consumer expenditure on salt when price changes from P1 to P2.
Which diagram illustrates this situation?
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Price elasticity of demand (PED) measures the responsiveness of demand to a change in price. It can differ for different goods.
For which good is the PED most elastic according to the table?
| good | percentage change in quantity demanded |
percentage change in price |
|
|
A B C D |
butter cars furniture petrol |
6.0 5.5 5.0 3.0 |
5.0 5.0 5.0 5.0 |
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If a 10% increase in the price of a product leads to a 5% decrease in quantity demanded, what type of price elasticity of demand does this represent?
Perfectly elastic
Relatively elastic
Unit elastic
Relatively inelastic
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If the price elasticity of demand for a good is greater than 1, how would you classify its elasticity?
Perfectly inelastic
Relatively inelastic
Unit elastic
Relatively elastic
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If many close substitutes for a product become available in the market, what is likely to happen to its price elasticity of demand?
It would become more elastic
It would become less elastic
It would remain unchanged
It would become perfectly elastic
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How might the concept of price elasticity of demand (PED) be useful for a government?
to determine the effect on employment of a change in income tax
to determine the effect on government revenue of a rise in the rate of interest
to determine the effect of providing a public good
to determine the result of imposing a tariff on imports
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A railway company increases ticket prices by 10% for travel between 06:00 and 09:00, causing a reduction in demand by 2%. After 09:00 it reduces ticket prices by 5%, resulting in a 7% increase in demand.
What is the price elasticity of demand in response to these price changes?
| between 06:00 and 09:00 |
after 09:00 | |
| A B C D |
elastic elastic inelastic inelastic |
elastic inelastic elastic inelastic |
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What can be concluded from the demand curve for the product shown in the diagram?
Price increases will raise the producers’ revenue.
Producers are unable to respond to a price rise.
The product is one with many substitutes.
There are 20 people able to buy the product.
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1 markThe initial price of a product was $80, and the initial quantity demanded was 200 units. After a price increase to $120, the quantity demanded decreased to 150 units. Calculate the price elasticity of demand.
2
0.5
1.25
0.75
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1 markThe price of a good increased by $10, resulting in a decrease in quantity demanded by 8%. If the initial price was $80 and the initial quantity demanded was 120 units, calculate the price elasticity of demand
0.64
1.56
0.83
1.0
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A mobile (cell) phone operator increases the price of making calls on its network. After the price increase, the revenue of the mobile phone operator falls by 10%.
What is the price elasticity of demand (PED) for the mobile operator’s service?
elastic
inelastic
perfectly elastic
unit elastic
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A product has a price elasticity of demand of – 0.5.
What happens to the demand for a product if its price falls from $1 to $0.80?
It decreases by 10%.
It decreases by 20%.
It increases by 10%.
It increases by 20%.
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The table shows the demand and supply for spices in a market in Africa.
| price per kg (US$) |
quantity demanded (kg) |
quantity supplied (kg) |
|
10 20 30 40 |
50 40 30 20 |
10 20 30 40 |
When the price rises from US$20 to US$30 per kg, what is the price elasticity of demand (PED) for spices?
0.25
0.5
1.0
2.0
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In Portugal, the response to changes in the price of French cheese are considered to be unit elastic.
Which diagram illustrates this situation?
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