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Economicshelpdesk
Mark Austin
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eD =
25%
20%
= 1.25
Sugar has an elastic demand as its coefficient of elasticity of demand is greater than one.
Sugar is a luxury for this household.
Question 2. When the price of wheat goes up by 10% its demand falls from 800 Units to
600 units .Calculate price elasticity of demand. Will the demand curve for wheat be flatter
or steeper?
Solution:
Given,
Original quantity (Q) = 800 units
New quantity (Q) =600 units
Change in quantity(Q) = 200 units
Percentage change in quantity =
200
eD =
25%
10%
= 2.25
Wheat has an elastic demand .it is a luxury for this household. The demand curve for wheat
will be flatter showing more than proportionate change in quantity demanded to a change
in price.
Question. 3. What is the relationship between slope and elasticity of a demand curve?
Solution: The formula of elasticity of demand is
eD
Question.4. A consumer spends $40 on a good at a price of $1 per units and $60 at a price
of $2 per unit. What is the price elasticity of demand? What kind of good it is? What shape
its demand curve will take?
Solution:
Given,
Original price (P) = $1
New price (P1)
= $2
11
$40
$1
$60
$2
40 units
= 30 units
eD
10
1
1
40
1
4
= 0.25
The good has an inelastic demand .It is a necessity like food, fuel etc. The demand curve
for this good is steep.
Question.5. Price of rice falls from $5 to $4 per kg. This leads to an increase in its demand
from 10 kg to 20 kg in a month. Comment on its elasticity of demand.
Solution :
Given,
P = $5
Q = 10 kg
P1
Q1 = 20 kg
= $4
= $1
= 10 kg
eD
10
1
.10 = 5
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