Not to be Turned In - For Your Own Study Use (Answers at bottom of page - try to do these yourself before looking at the answers) 1. Calculate the price elasticity of demand for petrol. He finds that when petrol prices rise by 10%, the demand for petrol falls by 5%. If the price goes up to 120 Euros the amount demanded drops to 9,000 units.

Practice Problems on Elasticity. demand is price inelastic) Total revenue: @£3 per day – … The Petroleum Minister of a country is concerned about the fall in demand for petrol when the price of petrol rises. Calculate the price elasticity of demand for petrol.

Example of PED. Increase in price of cigarettes increased the price of the whole bundle and reduced the … For example, if two goods A and B are consumed together i.e. At the price of 100 Euros, 10,000 rackets are demanded. How to calculate price elasticity of demand. Summary Practice Problems for Elasticity . Answer: % change in price = (+) 66.7% % change in demand = (-) 25% PED = -25/66.7 = 0.375 (i.e. At present, the vending machines sell soft drinks at $3.50 per bottle. Problem : Yesterday, the price of envelopes was $3 a box, and Julie was willing to buy 10 boxes. What is Julie's elasticity of demand? Price elasticity of demand = % change in Q.D. The Petroleum Minister of a country is concerned about the fall in demand for petrol when the price of petrol rises. Price Elasticity of Demand = Percentage change in quantity / Percentage change in price; Price Elasticity of Demand = -15% ÷ 60%; Price Elasticity of Demand = -1/4 or -0.25; Example #2. Cigarettes and marijuana have negative cross elasticity of demand which tells that they are complimentary goods. Price elasticity of demand = Variation% of quantity / Variation% of price.

Since it is greater than 0, we say that goods are substitutes. If price increases by 10% and demand for CDs fell by 20%; Then PED = -20/10 = -2.0 If the price of petrol increased from 130p to 140p and demand fell from 10,000 units to 9,900 We divide 20/50 = 0.4 = 40%; Example of calculating PED The policy has proved effective because cigarettes and marijuana are consumed together. She charges $10 per pound for her hand made chocolate. The subsequent price and quantity is (P2 = 9, Q2 = 10). It is calculated by dividing the percentage variation of the quantity demanded by the percentage variation of the price. He finds that when petrol prices rise by 10%, the demand for petrol falls by 5%. The initial price and quantity of widgets demanded is (P1 = 12, Q1 = 8). Today, the price has gone up to $3.75 a box, and Julie is now willing to buy 8 boxes. Elasticity of Demand – Example #1. Let us assume that there is a company that supplies vending machines.