Elasticity (Sensitivity) of Demand and Inelasticity of Demand Problems Solution

1. By substituting the variables into the equation, we find that the price is inelastic of demand. This
means that if we increase or decrease the price, we will not see a disproportionate increase or
decrease in the quantity demanded. We are not concerned with [- or + signs] because this is a
proportion. We are comparing.
48500-50000
50000+48000/2 = 0.03

12-8
8+12/2 = 0.4

0.03/0.4= 0.075

2. By substituting the variables into the equation, we find that the price is also inelastic of demand,
but just barely. It is very close to E = 1, meaning that a proportionate change in price will probably
have an equally proportionate change in demand. We call this unitary demand.
112000-75000
75000+112000/2 = 0.395

50-75
75+50/2 = -0.4

0.395/-0.4= 0.99

Fast food is generally elastic of demand. If one fast food location advertises a great sale on their deluxe
burger, they will see a larger proportion of customers coming to them. In the same light, if they increase
the price of their deluxe burger, consumers will probably go to the competitors, meaning that an
increase in price will see a larger proportionate decrease in customer demand. People are price
sensitive with products that are elastic of demand.

In this case, the jeans story, the only thing that would likely make this product inelastic of demand is
that it is such a popular trend, that people are paying a higher price. It could also be a brand image.
Without a significant investment in time and money, neither trends or brand image will last.

In the case of the pocket-Ts, this is a good indication that a normally elastic product is priced way too
low. The marketer could raise the price

Gasoline is generally inelastic of demand. If it changes in price (up or down), we will still buy it. We will
not see a significant proportionate change in the amount of gas customers are willing to buy.

Medicine tends to react in the same manner.