Question

Work out the PED for each, and comment on your result. The price of a smartphone is currently £200, and the quantity demanded is 4m. Next year the price falls to £180 and the quantity demanded rises to 6m. The price of pens today is £1, and the quantity demanded is 1m. Next year the price rises to £1.10 and the quantity demanded falls to 950,000. The price of a daily newspaper today is £1.50p, and the quantity demanded is 2m. Next year the price falls by 30p and the quantity demanded rises to 2.2m Question 2

Answer 1

a.) PED = 5

b.) PED = 5

c.) PED = 0.05

Explanation:

Here , PED = Price elasticity of demand

a.)

Given - The price of a smartphone is currently £200, and the quantity demanded is 4m. Next year the price falls to £180 and the quantity demanded rises to 6m.

PED = (Change in quantity demanded)×
`(Initial Price)/(Initial Quantity demanded)`

Now,

Change in quantity demanded =
`(6 - 4)/(180 - 200)` =
`(2)/(20) = (1)/(10)`

⇒PED =
`(1)/(10)`×
`(200)/(4)` = 5

b.)

Given -The price of pens today is £1, and the quantity demanded is 1m. Next year the price rises to £1.10 and the quantity demanded falls to 950,000.

Change in quantity demanded =
`(1000000 - 950000)/(1.10- 1)` =
`(50000)/(0.10) = 500000`

⇒PED =
`500000`×
`(1)/(1000000)` = 5

c.)

Given -The price of a daily newspaper today is £1.50p, and the quantity demanded is 2m. Next year the price falls by 30p and the quantity demanded rises to 2.2m

Change in quantity demanded =
`(2.2 - 2)/(30 - 1.50)` =
`(0.2)/(28.50) = (20)/(2850) = (2)/(285)`

⇒PED =
`(2)/(285)`×
`(1.50)/(2)` =
`(15)/(2850)`=
`(1)/(190)` = 0.005