Chapter 6, Problem 5P

To determine

The nature of price elasticity of demand in the flowing cases:

1. “The pizza delivery business in this town is very completive. I’d lose half my customers if I raised the price by as little as 10%.”
2. “I owned both the two Jerry Garcia autographed lithographs in existence. I sold one on eBay for a high price. But when I sold the second one, the price dropped by 80%.”
3. “My economic professor has chosen to use Krugman/Wells textbook for this class. I have no choice but to buy this book.”
4. “I always spend a total of exactly $10 per week on coffee.”

Concept Introduction:

Elastic Demand:

If the quantity demand falls/ rises more than proportionately to the rise/fall in price then, the demand is said to be elastic. Elastic demand usually has an absolute value more than 1.

Inelastic Demand:

If the quantity demand falls/ rises less than proportionately to the rise/fall in price then, the demand is said to be inelastic. Inelastic demand usually has an absolute value less than 1. If with the change in the price of the product there is no change in the quantity demanded, then the demand is perfectly inelastic.

Unitary Elastic Demand:

If the quantity demand falls/ rises proportionately to the rise/fall in price then, the demand is said to be unitary elastic and its absolute value is 1.