Elastic Demand問題

我唔係好識分elastic同inelastic. 自修做左小小練習題. 高手可唔可以幫我check下?

a) if price falls, quanity demanded rises

b) if price fall by 20%, quantity demanded rises by 10 units

c) if price falls by 20 cents, quantity demand rise by 10 units

d) if price falls by 20%, total expenditures on the good remain unchanged

e) if price fall by 10%, quantity demanded rises by 20%

a)not enough information, demand can be either elastic or inelastic

b)inelastic

c)inelastic

d)unit elastic

e)elastic

Update:

what is absolute changes?

1 Answer

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  • 1 decade ago
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    Consider: Ed = % Change in Qd / % Change in price

    For a, if price falls, Qd rises

    It only states out the law of demand: an increase ( decrease ) in price of a good will result in a decrease ( increase ) in its Qd, ceteris paribus. From that, you cannot deduce the price elasticity of demand. So you are correct.

    For b and c, there are some problems.

    Ed refers to % change in Qd as well as % change in price, but not the absolute changes. Therefore the answers should be not enough information as well.

    ======

    Consider the case in b, suppose the original Qd is 90 and the new Qd is 100, % change in Qd:

    [( 100 - 90 ) / 90 ] x 100% = 11.1%

    Then Ed = 11.1% / 20% = 5 / 9 < 1

    In this case, demand will be inelastic.

    But then, if the orignal Qd is 10 and the new one is 20, the % change will be:

    [( 20 - 10 ) / 10 ] x 100% = 100%

    Then Ed = 100% / 20% = 5 > 1

    In this case, demand will be elastic.

    From the above, you can see that without the figures of % change, you can never tell what Ed is. Similar approach can be applied to c) and you will also notice that Ed cannot be determined.

    ======

    For d, it is correct because total expenditure = Qd x price, when Ed = 1, % change in Qd = % change in price and hence the total expenditure remains the same under the price change.

    For e, apply the equation,

    Ed = 20% / 10% = 2 > 1

    Therefore it is of elastic demand.

    2007-10-03 13:38:47 補充:

    In the above, the absolute changes refer to b) Qd rises by 10 units ; c) price falls by 20 cents and Qd rises by 10 units.

    Source(s): My Econ Knowledge
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