ECON KO

Economics IV

#28 September 19, 2007

Joanna Kim P. Ocol IV-5

5. What is price elasticity of demand? When is demand elastic? Inelastic?

Price elasticity of demand is the reaction due to a change in price verified by its coefficient which is the percentage demand change in quantity demanded divided by the percentage change in the price.

A demand is said to be elastic if the percentage change in the quantity go beyond the percentage change in price, and the quantity demanded is receptive to the difference in price. In contrast, a demand is said to be inelastic if the quantity demanded is not that reactive to the adjustments or changes in prices. Which mean that the percentage change is quantity is less than the percentage change in price.

6. Give two factors that determine price elasticity of demand.

The two factors which determine price elasticity of demand is the availability of substitutes and the number of uses to which a piece of merchandise may be applied. The demand fir the commodity, services, good or product, with more uses is more elastic than the demand for commodities with less function or use.

7. Differentiate a perfectly elastic curve from a perfectly inelastic one.

A perfectly elastic curve if drawn as a horizontal line and being that the price does not change in any quantity. While a perfectly inelastic demand is when the quantity demanded is fixed for all alternative prices. Its demand curve is drawn as a vertical line.

8. [Question]

At first, the man