Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter7: Consumer Choice And Elasticity
Section: Chapter Questions
Problem 13CQ: Suppose Erin, the owner-manager of a local hotel projects the following demand for her rooms: a....
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Please write the attached text in handwriting with the writing (masa tarabeh) at the beginning of the page
Transcribed Image Text:Price elasticity of demand measures the
responsiveness of the quantity demanded of a
product towards the change in the price level
of that product. It reflects the change in the
quantity demanded due to the change in the
price level.
The types of elasticity can be broadly
categorized into three groups, which are:
1. Price elastic demand - The value of price
elasticity of demand is greater than 1.
2. Unit elastic demand - The value of price
elasticity of demand is equal than 1.
3. Price inelastic demand - The value of
price elasticity of demand is less than 1.
The formula for price elasticity of demand (E)
is:
% change in Q
% change in P
E =
Where,
Q = quantity demanded
P = price level
With the given information, the % change in P
will be:
% change in P= new P - old P* 100
old P
8-10
T0
* 100
= * 100
10
= 20%
The % change in Q is given as 12%. So, the
elasticity will be:
% change in Q
% change in P
12%
20%
E =
0.6
Thus, the elasticity will be 0.6. The value of
elasticity is less than 1, which means that
demand for T-shirt is price inelastic.
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