Price Elasticity – Activities

Activities

  • Activity 1

    You are given the following information:

    Goods and services Price elasticity coefficient
    Private education 1,1
    Electricity (Households) 0,13
    Restaurant meals 2,27
    Fuel (petrol) 0,6

    Indicate for which goods and services is the % change in price greater than the % change in quantity demanded and for which is the % change in price smaller than the % change in quantity demanded.

    Click to Show Answer

    Using the formula for price elasticity ep = (% ∆Qd)/(% ∆P), the % change in price is greater that the percentage change in quantity demanded for electricity (0,13) and fuel (0,6) giving it a value smaller than 1. For private education (1,1) and restaurant meals (2,27), the % change in price is smaller than the % change in quantity demanded giving it a value greater than 1.

    Compare the price elasticity of electricity with restaurant meals and indicate whether consumers are more responsive (sensitive) or less responsive (sensitive) to a change in the price of electricity compared to a change in the price of restaurant meals.

    Click to Show Answer

    If you compare the price elasticity of electricity of 0,13 with the price elasticity of restaurant meals of 2,27, we can say that consumers are more sensitive to a change in the price of restaurant meals than to a change in the price of electricity.

    If the % change P is greater than the % change in Qd, then the price elasticity coefficient is...

    Correct.

    If the % change P is greater than the % change in Qd, the demand is relatively inelastic and the price elasticity coefficient is smaller than 1.

    Think again.

    If the % change P is greater than the % change in Qd, the demand is relatively inelastic and the price elasticity coefficient is smaller than 1.

    A price elasticity of greater than 1 implies that the % change P is smaller than the % change in Qd.

    Think again.

    If the % change P is greater than the % change in Qd, the demand is relatively inelastic and the price elasticity coefficient is smaller than 1.

    A price elasticity of 1 implies that the % change P is equal to the % change in Qd,

  • Activity 2

    Given the following information about the price elasticity of a good or service, select the appropriate price elasticity characteristics for this product from the different categories.

    An increase of 9% in the price of the product decreases the quantity demanded by 5%

    Correct.

    The product is relatively inelastic since the % change in P is greater than the % change in Qd.

    Think again.

    In this case the % change in P is greater than the % change in Qd.

    Think again.

    In this case the % change in P is greater than the % change in Qd.

    Think again.

    In this case the % change in P is greater than the % change in Qd.

    Think again.

    In this case the % change in P is greater than the % change in Qd.

    Think again.

    Since the % change in P is greater than the % change in Qd the value of ep is less than 1.

    Correct.

    Since the % change in P is greater than the % change in Qd the value of ep is less than 1 but greater than 0.

    Think again.

    Since the % change in P is greater than the % change in Qd the value of ep is less than 1 but greater than 0.

    Think again.

    Since the % change in P is greater than the % change in Qd the value of ep is less than 1 but greater than 0.

    Think again.

    Since the % change in P is greater than the % change in Qd the value of ep is less than 1 but greater than 0.

    Correct.

    Since the % change in P is greater than the % change in Qd it has a relatively low price elasticity value.

    Think again.

    Since the % change in P is greater than the % change in Qd it has a relatively low price elasticity value.

    Think again.

    Since the % change in P is greater than the % change in Qd it has a relatively low price elasticity value.

  • Activity 3

    Given the following information about the price elasticity of a good or service, select the appropriate price elasticity characteristics for this product from the different categories.

    The product has a price elasticity of 1,7.

    Think again.

    It is relative elastic since elasticity value is greater than 1. In other words the % change in P is smaller than the % change in Qd.

    Correct.

    It is relative elastic since elasticity value is greater than 1. In other words the % change in P is smaller than the % change in Qd.

    Think again.

    It is relative elastic since elasticity value is greater than 1. In other words the % change in P is smaller than the % change in Qd.

    Think again.

    It is relative elastic since the elasticity value is1,7 which is greater than 1 but smaller than infinity.

    Think again.

    It is relative elastic since the elasticity value is1,7 which is greater than 1 but smaller than infinity.

    Correct.

    It is relative elastic since the elasticity value is1,7 which is greater than 1 but smaller than infinity.

    Think again.

    It has a relative large price elasticity value since it is greater than 1.

    Correct.

    It has a relative large price elasticity value since it is greater than 1.

    Think again.

    It has a relative large price elasticity value since it is greater than 1.

    Think again.

    Since it has a price elasticity value of 1,7 it implies that the % change in Qd is greater than the % change or price or that the % change in price is less than the % change in Qd.

    Correct.

    Since it has a price elasticity value of 1,7 it implies that the % change in Qd is greater than the % change or price or that the % change in price is less than the % change in Qd.

    Think again.

    Since it has a price elasticity value of 1,7 it implies that the % change in Qd is greater than the % change or price or that the % change in price is less than the % change in Qd.

    Think again.

    Since the price elasticity is greater than 1 it means for this product people are price sensitive.

    Correct.

    Since the price elasticity is greater than 1 it means for this product people are price sensitive.

  • Activity 4

    Assume that due to an improvement in the weather, the maize crop increases. The equilibrium price decreases from R1 000 per ton to R850 per ton while the equilibrium quantity increases from 1 million tons to 1,1 million tons.

    Select the appropriate price elasticity characteristics for maize.

    Relatively inelastic
    Relatively elastic
    Unitary elastic
    Perfectly inelastic
    Perfectly elastic

    ep = 1
    0 ep 1
    1 ep ∞
    ep = 0
    ep = ∞

    It has a relatively low price elasticity value.
    It has a relatively large price elasticity value.
    It has a unitary price elasticity value.

    The % change in Qd is less than the % change in P.
    The % change in Qd is greater than the % change in P.
    The % change in Qd is equal to the % change in P.
    The % change in Qd is 0.
    The % change in Qd is infinite.

    It can be argued that for this product people are not very price sensitive.
    It can be argued that for this product people are price sensitive.

    Click to see the answer

    Using the midpoint method, the price elasticity for maize is 0.59. This indicates that maize has a price elasticity that is less than 1 since the % change in P is greater than the % change in Qd. It therefore has a relatively low price elasticity value and it can be argued that in the case of maize people are not price sensitive.

  • Activity 5

    You are given the following diagrams and must indicate whether the demand is relatively elastic, relatively inelastic or unitary elastic.

    a. 

    b. 

    c. 

    Click to Show Answer

    a. Relatively inelastic

    b. Relatively elastic

    c. Unitary elastic