(a) What is meant by price elasticity of demand? (b) The following figures are extracted from a schedule of demand and supply: Price Quantity Demanded Quant...
Question 1 Report
(a) What is meant by price elasticity of demand?
(b) The following figures are extracted from a schedule of demand and supply:
| Price | Quantity Demanded | Quantity Supplied |
| N9.00 | 1050 | 850 |
| N10.00 | 1000 | 1000 |
| N11.00 | 950 | 1150 |
(i) Calculate the elasticity of demand when price rises from N10.00 to N11.00.
(ii) State whether the demand in (i) above is elastic or inelastic.
(iii) Calculate the elasticity of supply when price falls from N10.00 to N9.00.
(iv) State whether the supply in (iii) above is elastic or inelastic
Answer Details
(a) Price elasticity of demand measures the degree of responsiveness of the quantity demanded of a good to a change in its price. It is given by \( E_d = \dfrac{\%\,\text{change in quantity demanded}}{\%\,\text{change in price}} \).
(b)(i) Elasticity of demand when price rises from N10.00 to N11.00. Quantity demanded falls from 1000 to 950.
\[ \%\,\Delta Q_d = \frac{950-1000}{1000}\times100 = -5\% \qquad \%\,\Delta P = \frac{11-10}{10}\times100 = 10\% \]
\[ E_d = \frac{5}{10} = 0.5 \]
(b)(ii) Since \( E_d = 0.5 < 1 \), the demand is inelastic.
(b)(iii) Elasticity of supply when price falls from N10.00 to N9.00. Quantity supplied falls from 1000 to 850.
\[ \%\,\Delta Q_s = \frac{850-1000}{1000}\times100 = -15\% \qquad \%\,\Delta P = \frac{9-10}{10}\times100 = -10\% \]
\[ E_s = \frac{15}{10} = 1.5 \]
(b)(iv) Since \( E_s = 1.5 > 1 \), the supply is elastic.
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