Calculate the price elasticity of demand if the quantity demanded changes from 100 units to 80 units when the price changes from $10 to $12.

Price elasticity of demand is 100.

• Measures responsiveness to price.

• Indicates demand sensitivity.

• Useful for pricing strategy.

True or False: Inelastic demand occurs when the absolute value of price elasticity is greater than 1.

False. Inelastic demand occurs when the absolute value of price elasticity is less than 1.

If a 10% increase in price leads to a 5% decrease in quantity demanded, what is the price elasticity of demand?

Price elasticity of demand (ep) = (ΔQ/Q) × 100 / (ΔP/P) = (-5/100) × 100 / (10/100) = -5 / 0.1 = -50. Thus, ep = 50.

Fill in the blank: Perfectly elastic demand has a price elasticity of demand equal to ___ .

Infinity

What does it mean if the price elasticity of demand is unitary?

It means that the percentage change in quantity demanded is equal to the percentage change in price, hence total expenditure remains constant.

Calculate the income elasticity of demand if quantity demanded increases from 50 to 75 when income rises from $2000 to $2500.

Income elasticity (ed) = (ΔQ/Q) × 100 / (ΔI/I) = ((75 - 50)/50) × 100 / ((2500 - 2000)/2000) = (25/50) × 100 / (500/2000) = 50 / 0.25 = 200.

True or False: A demand curve that is vertical indicates perfectly elastic demand.

False. A vertical demand curve indicates perfectly inelastic demand.

If the demand for good X decreases by 15% when the price of good Y increases by 10%, what is the cross elasticity of demand?

Cross elasticity (ec) = (ΔQx/Qx) × 100 / (ΔPy/Py) = (-15/100) × 100 / (10/100) = -15 / 0.1 = -150.

In the total expenditure method, if total expenditure increases when price decreases, this indicates demand is ___ .

Elastic

Fill in the blank: The demand curve for inelastic demand is ___ .

Steep

What is the formula for calculating price elasticity of demand?

Ep = Percentage change in quantity demanded / Percentage change in price.

If the quantity demanded is 200 units at a price of $5 and increases to 250 units when the price decreases to $4, calculate the price elasticity of demand.

Ep = ((250 - 200)/200) × 100 / ((4 - 5)/5) = (50/200) × 100 / (-1/5) = 25 / -0.2 = -125.

True or False: A horizontal demand curve indicates that a small change in price leads to a small change in quantity demanded.

False

A horizontal demand curve indicates elasticity.

• Perfectly elastic demand type.

• Small price changes cause large shifts.

• Critical for understanding market behavior.

Calculate the price elasticity of demand if a 20% increase in price results in a 10% decrease in quantity demanded.

Ep = (-10/100) × 100 / (20/100) = -10 / 0.2 = -50.

Fill in the blank: When demand is perfectly inelastic, the demand curve is ___ .

Vertical