University:
London School of Economics and Political Science
Course:
L400 | International Social and Public Policy
Academic year:

2022
Views:

433

Pages:

1
Author:

Prerna T

Assume a price rise of about 10% on the following goods. State whether there is likely to be a large, small, or no change in the quantity demanded. Then state whether you think demand is price elastic or price inelastic, and why. Table: Product Small or large change in quantity demanded Price elastic or price inelastic Why? Oil Small Inelastic Necessary for everyday living T.V. Large Elastic There are alternative options, many people can delay purchases Cars Large Elastic Expensive, many options, people can delay purchases Newspapers Small Inelastic Essential for information, few substitutes Demand Schedule for Baked Beans: Price of baked beans per tin Market demand per week 40 pence 1000 30 pence 1500 Calculation of Price Elasticity of Demand: PED = (% change in quantity demanded) / (% change in price) PED = (500 / 1000) / (10 / 40) = 2 Comment: PED is price inelastic (PED < 1). Demand Curve for Baked Beans: A downward-sloping curve, indicating a negative relationship between price and quantity demanded. Additional Questions and Explanations: For bread: Price elasticity of demand is price elastic. Total revenue increases when price decreases. Advise bread-makers to cut the price of a loaf. For TVs: Price elasticity of demand is price elastic. Total revenue decreases when price increases. Advise producers not to cut the price of a TV.