Answered: 1) Give an example of a product that is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1) Give an example of a product that is elastic and explain why.

2) Give an example of a product that is inelastic and explain why.

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ANS

PED is the measure that shows how the quantity demanded (QD) of a good change when the level of price of the commodity changes. It is given by the following formula:

$P r i c e E l a s t i c i t y o f D e m a n d (P E D) = \frac{% c h a n g e i n q u a n t i t y d e m a n d e d}{% c h a n g e i n p r i c e}$

If PED = 1 then the % change in QD is exactly equal to the % change in price. We say that the demand is unit elastic.
If PED > 1 then the % change in QD is more than the % change in price. We say that the demand is elastic.
If PED < 1 then the % change in QD is less than the % change in price. We say that the demand is inelastic.

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