Diwali vacation Home Work for Grade IX A & D
Work Sheet Elasticity of demand
• Price elasticity of __________ is defined as the ___________ change in
quantity demanded resulting from one percent change in the ___________of the
good, other things remaining constant.
% change in quantity demanded
PED = --------------------------------------
 |
Percentage is worked out as
follows:
 |
%change in quantity
demanded = -------------------------- X 100
original quantity
% change in price =
------------------------------- X 100
original price
Question 2:
For problems
1–3: calculate elasticity.
1. Price is increased from $20
to $21 and quantity demanded falls from 10 to 9.
2. Price is lowered from $40 to
$39 and quantity demanded rises from 7 to 8.
3. Price is lowered from $20 to
$19 and quantity demanded rises from 100 to 105.
Question 3:
This
worksheet looks at the measure of price elasticity of demand; how to measure
it, what determines its value and what value it is to companies as a measure.
To cover the worksheet fully, you should have a sound knowledge of the
principles underlying supply, demand and the determination of price in a
market.
Step
1 - E L A S T I C or INELASTIC?
Price Elasticity of Demand is a
measure of how responsive demand is to a change in price. If a price change
leads to a considerably bigger change in quantity demanded, we would consider
the good to be responsive to a price change: hence elastic. If, however, a
similar price change leads to a much smaller change in demand, we would
consider it inelastic.To get a more precise measure than this of the responsiveness to a price change we can calculate a value for price elasticity of demand. We use the formula:
PRICE
ELASTICITY OF DEMAND =
|
percentage change in demand
percentage change in price |
Use the formula above to calculate values of Price Elasticity for all the situations below:
Price
|
Quantity
|
% change in quantity demanded
|
% change in price
|
Price Elasticity of Demand
|
||
Initial
|
New
|
Initial
|
New
|
|||
25
|
30
|
100
|
40
|
1. ___________
|
||
40
|
70
|
120
|
90
|
2. ___________
|
||
200
|
220
|
80
|
64
|
3. ___________
|
||
50
|
75
|
150
|
135
|
4. ___________
|
||
1. _________________________
2. _________________________
3. _________________________
4. _________________________
What determines E L A S T I C I T Y?
As we have seen above it is important to a company to have an idea of the value of the elasticity of demand of its good or service as it will affect what happens to their total revenue as price changes. What should the company aim to do with their price in each of the circumstances below?
Elasticity
|
Change in price to
increase total revenue??
(Increase or decrease price?) |
Elastic
|
|
Inelastic
|
|
Unit elastic
|
If the company want to estimate the value of the price elasticity of their product, then they need to judge it against the following criteria:
·
Proportion of income spent on the good - the lower the
proportion of income spent, the more inelastic the good will tend to be
·
The number of substitutes - the more
substitutes a good has the easier it is for consumers to switch to another
product if the price goes up
·
The strength of the brand - the stronger the
brand, the more inelastic the product will be
·
The level of necessity or addiction - the more
necessary or addictive something is, the more inelastic it will be
Judge the products in the table below to decide whether you think they will be elastic or inelastic:
Product
|
Elastic or
inelastic?
|
Reasons?
|
A box of matches
|
||
A luxury holiday
|
||
'Heinz' baked beans
|
||
Computers - home users
|
||
Computers - business users
|
||
Cigarettes
|
||
Elastic bands
|
Inflation Worksheet
Question 5:
What is:
a) Inflation?
_________________________________________________________________________________
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
b) Consumer Prive Index?
_________________________________________________________________________________
_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
(c) How is Inflation measured?
·_________________________________________________________________________________
_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Question 6:
The Causes Of Inflation.
a) Cost -
_________________________________________________________________________________
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
b) Excess Demand -
_________________________________________________________________________________
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
c) Imported -
_________________________________________________________________________________
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Question 7:
(4) Suggest Policies to Reduce Inflation.
a) Monetary Policy -
_________________________________________________________________________________
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
b) Fiscal Policy -
_________________________________________________________________________________
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
c) Price and Income -
_________________________________________________________________________________
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
d) External -
_________________________________________________________________________________
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
No comments:
Post a Comment