10 What is the price elasticity of demand at point A a 25 b

10. What is the price elasticity of demand at point A?

(a) -2.5 (b) -0.33 (c) -3 (d) None of the above. Show working

11. At which point is the price elasticity of demand unit elastic?

(a) A (b) B (c) C (d) None of the above.

Solution

Question 10

Movement from point A to point B results in an increase in quantity demanded by 2 kg and decrease in price by $5 per kg.

So,

Change in quantity demanded = 2

Change in price = -5

Price at point A = 15

Quantity demanded at point A = 2

Calculate the price elasticity of demand at point A -

Ed = (Change in QD/Change in price) * (Price at point A/Quantity at point A)

Ed = [2/(-5)] * [15/2] = -3

The price elasticity of demand at point A is -3.

Hence, the correct answer is the option (c).

Question 11

Price elasticity of demand is unit elastic at mid-point of the demand curve.

Point B lies at mid-point of the demand curve.

So, at point B, the price elasticity of demand is unit elastic.

Hence, the correct answer is the option (b).