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Chapter 19: 19.1 Learning objective (page 416)

Calculate price elasticity of demand

Short Answer

Expert verified

The price elasticity of demand concept is explained

Step by step solution

01

Introduction 

The ratio of the percentage change in quantity demanded of a product to the percentage change in price is known as price elasticity of demand. Economists use it to figure out how supply and demand change when the price of a product changes.

02

Calculating price elasticity of demand

Elasticity is calculated using the following formula:

Price Elasticity of Demand=percent change in quantitypercent change in price.
03

Example for calculating price elasticity of demand

Teenagers, minorities, low-income smokers, and casual smokers are particularly sensitive to price changes: for every ten percent increase in the price of a pack of cigarettes, smoking rates decline by roughly seven percent. We obtain by plugging those numbers into the formula

Price Elasticity of Demand=percent change in quantitypercent change in price=-7%10%=-0.7

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Most popular questions from this chapter

How will the long-run adjustment of Egyptian cotton supply from elimination of the subsidy likely affect the number of suppliers - that is, Egyptian cotton farmers? Explain.

Is the students' supply of learning tasks relatively elastic or inelastic? Explain.

What do you suppose were the likely short-run adjustments to the removal of the cotton subsidy by Egyptian farmers who continued to devote all of their lands to agricultural crops?

It is very difficult to find goods with perfectly elastic or perfectly inelastic demand. We can, however, find goods that lie near these extremes. Characterize demands for the following goods as being near perfectly elastic or near perfectly inelastic.

a. Corn grown and harvested by a small farmer in Iowa

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c. Water for a desert hiker

d. One of several optional textbooks in a pass-fail course

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