(a) What is meant by price elasticity of demand? (b) The following figures are extracted...
(a) What is meant by price elasticity of demand?
(b) The following figures are extracted from a schedule of demand and supply:
| Price | Quantity Demanded | Quantity Supplied |
| N9.00 | 1050 | 850 |
| N10.00 | 1000 | 1000 |
| N11.00 | 950 | 1150 |
(i) Calculate the elasticity of demand when price rises from N10.00 to N11.00.
(ii) State whether the demand in (i) above is elastic or inelastic.
(iii) Calculate the elasticity of supply when price falls from N10.00 to N9.00.
(iv) State whether the supply in (iii) above is elastic or inelastic
Explanation
(a) Price elasticity of demand means the degree of responsiveness of demand to little changes in prices of goods and services.
Formula =Percentage change in demandOR
Percentage change in price
dp x p
dq x q
(b)(i) ED=Percentage change in demand OR
Percentage change in price
dp x p
dq x q
When price rises from N10 to N11
Percentage change in demand = 1000 - 150 = 50
\(\frac{50}{1000} \times \frac{100}{1}\) = 5%
Percentage change in price = N11 - N10 = N 1
\(\frac{1}{10} \times \frac{100}{1}\)= 0.5OR
ED = changes in Q X P
change in P Qd
= \((\frac{}{1} \times \frac{10}{1000}\) = 0.5
(ii) Demand is inelastic since elasticity is less than one
(iii) Elasticity of supply =Percentage change in supply
Percentage change in demand
Percentage change in supply = 1000 - 850 = 150
= \(\frac{150}{1000} \times \frac{100}{1}\) = 15%
OR
ED = change in Qs X P = \(\frac{150}{1} \times \frac{10}{1000}\) =1.5
change in P Qs
(iv) Elasticity of supply is elastic because the value is greater than one.