The following questions concern the price elasticity of demand. Define in both t

Question

The following questions concern the price elasticity of demand.

Define in both technical and layman’s terms the price elasticity of demand.

Identify two separate factors that determine the price elasticity of demand for a particular good or service.

Would you expect the price elasticity of demand for cars to be more price elastic or more price inelastic than the price elasticity of demand for 2015 model year Subaru Outbacks? Fully explain why.

I want you to calculate the price elasticity of demand between two points on a given hypothetical demand curve. Point 1 will have a price that is $9.XX and a quantity of 156. Point 2 will have a price that is $9.YY and a quantity of 145.   The digits XX are to be the date (without reference to month or year) of your birthday.   The digits YY are to be twice the values for XX. For example, if my birthday is 8/21/60 then the first price is $9.21, the second price is $9.42. Show all components of the calculation in a very concise format.

Explanation / Answer

Elasticity of demand is defined as the percentage change in the quantity demanded due to a percentage change in the price of the commodity. Elasticity actually measures the responsiveness of demand due to change in price.

Ed= % change in Quantity/ % change in price = (Change in Q/Changein P)*(P/Q)

In simple terms one can define the elasticity is the change in the demand due to change in price.

Factors affecting elasticity

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