Name: ______Date: ______Per: ______

PRICE ELASTICITY OF DEMAND WORKSHEET 1

Elasticity of Demand: Measure of how responsive quantity is to a price change. The higher the measure then the more responsive consumers will be to a change in price according to the Law of Demand. The lower the measure then the less responsive consumers will be to a change in price according to the Law of Demand

Part I: Elastic or Inelastic

Directions: For the following goods below identify if the good is likely to be price elastic or inelastic, then provide and explanation why.

Good/Service / Elastic/Inelastic / Explanation
Hamburgers
Cocaine
Sandwich at Beach Hut Deli
Fresh Carrots
Luxury Automobile
Toothpics

Part II: Elasticity Graphs

Directions: Below create a graph for each of the Demand Schedules then label the graphs as Elastic, Inelastic, or Unitary Elastic

CEMENT / ICE CREAM / SHELLFISH/oz.
Price
($ per ton) / Quantity
(thousands of tons)
50 / 20
40 / 22
30 / 24
20 / 26
10 / 28
/ Price of Ice Cream ($) / Quantity Demanded
(millions)
3.00 / 5
2.50 / 15
2.00 / 25
1.50 / 35
1.00 / 45
.50 / 55
/ Price of Shellfish/oz. / Quantity Demanded
(millions)
4.00 / 20
2.00 / 30
1.00 / 45
.50 / 68
GRAPH / GRAPH / GRAPH
Elastic, Inelastic or Unitary Elastic / Elastic, Inelastic or Unitary Elastic / Elastic, Inelastic, or Unitary Elastic

Part II: Calculating Elasticity

1. An Elasticity of 1.0 of greater = ______demand

2. An Elasticity of exactly 1.0 = ______demand

3. An Elasticity of between 0 and 1.0 = ______demand

Use the Elasticity formula to calculate values of Elasticity for all the situations below. Change negatives to positives.

STEP 1: Calculate the % change in quantity demanded - %ΔQ

[QDemand1 (New) – QDemand2(Original)] / QDemand1(Original)

STEP 2: Calculate the % change in price - %ΔP

[Price1(New) – Price2(Original)] / Price1(Original)

STEP 3: Calculate the price elasticity of demand - %ΔQ / %ΔP

% Change in Quantity Demanded (STEP 1) / % Change in Price (STEP 2)

Quantity / Price / STEP 1 / STEP 2 / STEP 3
Original Q (Q1) / New Q
(Q2) / Original Price (P1) / New Price (P2) / % Change in Q / % Change in Price / Elasticity Calculation
25 / 30 / 100 / 40
40 / 70 / 120 / 90
200 / 220 / 80 / 64
50 / 75 / 150 / 135

III. Calculating Elasticity from Demand Schedules

As seen above, in order to calculate elasticity all you need is price points and quantity demanded. This information is listed in any demand schedule. Choose any two price points and quantities in order to calculate elasticity for that price change.

Directions: Use the information from the Demand Schedules below to calculate elasticity for each product. Use the highlighted prices and quantities for your calculation. SHOW YOUR WORK!

CEMENT / ICE CREAM / SHELL FISH/oz
Price
($ per ton) / Quantity
(thousands of tons)
50 / 20
40 / 22
30 / 24
P1- 20 / Q1 -26
P2 -10 / Q2 -28
/ Price of Ice Cream ($) / Quantity Demanded
(millions)
P1 - 3.00 / Q1 - 5
P2 - 2.50 / Q2 – 15
2.00 / 25
1.50 / 35
1.00 / 45
.50 / 55
/ Price of Shellfish (per lb) / Quantity Demanded
(millions)
20 / 40
10 / 60
P1 - 5 / Q1 - 90
P2 - 2.50 / Q2 - 135
1.25 / 202

1.  Cement Price Elasticity of Demand: ______(Calculation) + ______(Elastic, Inelastic, Unitary)

2.  Ice Cream Price Elasticity of Demand: ______(Calculation) + ______(Elastic, Inelastic, Unitary)

3.  Cheese Burger Prices Elasticity of Demand: ______(Calculation) + ______(Elastic, Inelastic, Unitary)

IV. Total Revenue and Demand Elasticity

As discussed in lecture, producers care about elasticity because it reflects to how much price changes will change affect how much of their product will be sold and ultimately how much money they will take in – aka total revenue. Additionally, we discovered that total revenue increases during price changes in the elastic segments of the demand curve (higher prices) and decreases in the inelastic segments of the demand curve (lower prices).

Directions:

1.  Calculate the Total Revenue for each price point.

2.  Label whether movement to each price point (AàB, BàC, ect) results in an Increase or Decrease in Total Revenue

3.  Elastic, Inelastic, or Unitary based on your Total Revenue observations

Points / Price of Burgers ($) / Quantity Demanded
(millions) / Total Revenue (TR)
PxQ / Increase or Decrease in TR / Elastic, Inelastic, or Unitary
A / 35 / 100 / 3500 / NA / NA
B / 30 / 150
C / 25 / 200
Mid Point / 22.5 / 225
D / 20 / 250
E / 15 / 300
F / 10 / 350

V. What is Elastic and Why?

Product Elastic or inelastic? Reasons?

A box of matches ______

A luxury vacation ______

'Heinz' Ketchup ______

Computers - home users ______

Computers - business users ______

Cigarettes ______

Rubber bands ______

VI: Graphic Elasticity:

Graph the following schedule and figure revenue:

Demand Schedule for Desktop Computers:

Price Quantity Demand Revenue

$1,000.00 5000

$900.00 6000

$825.00 6800

$700.00 7500

$550.00 8500

1. If the store decided to increase the price of its desktop computers from $825 to $900, the stores sales will fall by how many computers?

2. What is the elasticity of demand?

3. Is the price elasticity of demand elastic, unit elastic, or inelastic?

4. Will the stores total revenue increase, decrease, or remain unchanged?