Price Elasticity Of Demand Essay

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Answer the following three questions to the best of your ability.
1. Mathematical Exercise: Consider the following demand curve for apples.

2. Price (in dollars) 3. Quantity (in Bushels)
4. 10 5. 1
6. 9 7. 2
8. 8 9. 3
10. 7 11. 4
12. 6 13. 5
14. 5 15. 6
16. 4 17. 7

a) Find the price elasticity of demand between the prices $8 and $9. Is the demand curve elastic at this point? If so, why? If not, why not? What happens to revenue if the price falls from $10 to $9? Why?

= The price elasticity of demand between the price of 8 and 9 is 2.7, so this means the demand curve is elastic. Since the price elasticity of demand is greater than 1, the slope of the demand curve will be horizontal and consumers will not be fond of the price change …show more content…

= When the price changes from 5 to 4 the price elasticity of demand is .8, meaning the demand curve is inelastic. Since the price elasticity of demand is less than 1, then the slope of the demand curve will be vertical. Consumers are less likely to be bothered by the price change and will continue to buy the product.

Descriptive Exercise: Consider the following pairs of goods. Discuss which of them has a higher (in absolute value) elasticity and why.

a) Oil in the short run versus oil in the long run. = Oil in the long run has a higher absolute value in elasticity than oil in the short run since oil in the long run is more expensive than oil in the short run

b) Food (as a whole product) versus vacations. = Vacations have a higher absolute value in elasticity than food since vacations are luxuries. People are willing to give up vacations for food in order to survive

c) Harry Potter novels versus other fantasy novels. = Fantasy novels have a higher absolute value in elasticity than Harry Potter novels since Harry Potter has been around for ages and consumers are willing to pay amount for the other

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