Problems on PED

Economics notes by Rahul Sir’s MBA/BBA Classes

Problems related to Price Elasticity of Demand:

1. Yesterday, the price of envelopes was $3 a box, and Julie was willing to buy 10 boxes. Today, the
price has gone up to $3.75 a box, and Julie is now willing to buy 8 boxes. Is Julie's demand for
envelopes elastic or inelastic? What is Julie's elasticity of demand?

2. If Neil's elasticity of demand for hot dogs is constantly 0.9, and he buys 4 hot dogs when the price
is $1.50 per hot dog, how many will he buy when the price is $1.00 per hot dog?

3. From the dataa shown in Table 2 about demand for smart phones, calculate the price elasticity of
demand from: point B to point C, point D to point E, and point G to point H. Classify the
elasticity at each point as elastic, inelastic, or unit elastic.

Table 2.
Points P Q
A 60 3,000
B 70 2,800
C 80 2,600
D 90 2,400
E 100 2,200
F 110 2,000
G 120 1,800
H 130 1,600

4. Suppose the demand curve for I Pads is given by q = 500 − 10p.

(a) Compute the price elasticity of this demand function.

(b) What is the price elasticity of demand when the price is $30?

(c) What is the percent change in the demand if the price is $30 and increases by 4.5%?

(d) How does this change in demand inform management about its price change?

5. Benson just opened a business se

selling
lling calculators. The demand function for calculators can be given by q =
400 − 2p. Find the price for which he should sell the calculators in order to maximize revenue.
6. Find the value of the slope and the absolute price elasticity of demand at the pric
pricee $15 from the linear
demand curve P=25-6Q.

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