Work out the PED for each, and comment on your result. The price of a smartphone is currently £200, and the quantity demanded is 4m. Next year the price falls to £180 and the quantity demanded rises to 6m. The price of pens today is £1, and the quantity demanded is 1m. Next year the price rises to £1.10 and the quantity demanded falls to 950,000. The price of a daily newspaper today is £1.50p, and the quantity demanded is 2m. Next year the price falls by 30p and the quantity demanded rises to 2.2m Question 2

Answers

Answer 1

Answer:

a.) PED = 5

b.) PED = 5

c.) PED = 0.05

Step-by-step explanation:

Here , PED = Price elasticity of demand

a.)

Given - The price of a smartphone is currently £200, and the quantity demanded is 4m. Next year the price falls to £180 and the quantity demanded rises to 6m.

PED = (Change in quantity demanded)×[tex]\frac{Initial Price}{Initial Quantity demanded}[/tex]

Now,

Change in quantity demanded = [tex]\frac{6 - 4}{180 - 200}[/tex] = [tex]\frac{2}{20} = \frac{1}{10}[/tex]

⇒PED = [tex]\frac{1}{10}[/tex]×[tex]\frac{200}{4}[/tex] = 5

b.)

Given -The price of pens today is £1, and the quantity demanded is 1m. Next year the price rises to £1.10 and the quantity demanded falls to 950,000.

Change in quantity demanded = [tex]\frac{1000000 - 950000}{1.10- 1}[/tex] = [tex]\frac{50000}{0.10} = 500000[/tex]

⇒PED = [tex]500000[/tex]×[tex]\frac{1}{1000000}[/tex] = 5

c.)

Given -The price of a daily newspaper today is £1.50p, and the quantity demanded is 2m. Next year the price falls by 30p and the quantity demanded rises to 2.2m

Change in quantity demanded = [tex]\frac{2.2 - 2}{30 - 1.50}[/tex] = [tex]\frac{0.2}{28.50} = \frac{20}{2850} = \frac{2}{285}[/tex]

⇒PED = [tex]\frac{2}{285}[/tex]×[tex]\frac{1.50}{2}[/tex] = [tex]\frac{15}{2850}[/tex]= [tex]\frac{1}{190}[/tex] = 0.005


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Answers

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