Price elasticity

1. Price elasticity of demand from point B to point C:

% change in quantity = 3500 – 2000 ÷ (3500+2000)/2 × 100 = 1500 ÷ 2750 × 100 = 54.55

% change in price = 30 – 20 ÷ (30 +20)/2 × 100 = 10/ 25 × 100 = 40

Price elasticity of demand = 54.55 ÷ 40 = 1.36

2. Classify the elasticity for point B to point C as elastic, inelastic, or unitary.

When elasticity is > 1, it is considered elastic. In our case this number is 1.36, thus the elasticity for point B to point C is elastic.

3. Explanation for the elasticity for point B to point C.

The quantity demanded increased by 54,55% when the cost was raised by 40%. Therefore, there was a great response to changes in the price. This should have happened due to other reasons than the cost – tendencies, etc.

4. Price elasticity of demand from point D to point E.

% increase in quantity = 1700 – 1800 ÷ (1700+1800)/2 × 100 = – 100 ÷ 1750 = -5.71

% change in price = 50 – 40 ÷ (50+40)/2 × 100 = 10 ÷ 45 × 100 = 22.2

Price elasticity of demand = -5.71 ÷ 22.2 = – 0.26. (But, as soon as we interpret elasticities as positive numbers, it will be 0.26).

5. Classify the elasticity for point D to point E as elastic, inelastic, or unitary.

When elasticity is <1, it is considered inelastic. In our case this number is 0.26, thus the elasticity for point D to point E is inelastic.

6. Explanation for the elasticity for point D to point E.

In this case, the quantity demanded was decreased, when the cost was raised by 22%. It looks like the price did not play a huge role as soon as the quantity demanded was reduced slightly only.

7. Price elasticity of demand from point G to point H.

% change in quantity = 1600 – 2200 ÷ (1600+2200)/2 × 100 = – 600 ÷ 1900 × 100 = -31.58

% change in price = 80 – 70 ÷ (80+70)/2 × 100 = 10/ 75 . 100 = 13.33

Price elasticity of demand = -31.58 ÷ 13.338 = -2.4 (But, as soon as we interpret elasticities as positive numbers, it will be 2.4).

8. Classify the elasticity for point G to point H as elastic, inelastic, or unitary.

When elasticity is > 1, it is considered elastic. In our case this number is 2.4, thus the elasticity for point G to point H is elastic.

9. Explanation for the elasticity for point G to point H.

In this case, we can see the application of the law of demand: less quantity is demanded when the price is higher. When the cost was increased by 13,33%, the demand fell by 31%58.

10. Price elasticity of supply from point K to point L.

% increase in quantity = 1100 – 1000 ÷ (1100+1000)/2 × 100 = 100 ÷ 1050 × 100 = 9.52

% increase in price = 8- 4 ÷ (8+4)/2 × 100 = 4 ÷ 6 × 100 = 66.67

Price elasticity of supply = 9.52 ÷ 66.67 = 0. 14

11. Classify the elasticity for point K to point L as elastic, inelastic, or unitary.

When elasticity is <1, it is considered inelastic. In our case this number is 0.14, thus the elasticity for point K to point L is inelastic.

12. Explanation for the elasticity for point K to point L.

Even though the price was increased, it did not highly affect the supply, which means the supply was not responsive to changes in the cost.

13. Price elasticity of supply from point N to point P.

% increase in quantity = 3200 – 1600 ÷ (3200+1600)/2 × 100 = 1600 ÷ 2400 × 100 = 66.67

% increase in price = 64 – 32 ÷ (64+32)/2 × 100 = 32 ÷ 48 × 100 = 66.67

Price elasticity of supply = 66.67 ÷ 66.67 = 1

14. Classify the elasticity for point N to point P as elastic, inelastic, or unitary.

When elasticity is 1, it is considered unitary. In our case this number is 1, thus the elasticity for point N to point P is unitary.

15. Explanation for the elasticity for point N to point P.

As soon as the increase in quantity and increase in price are equal (both are 66,67%), the elasticity of supply is unitary because the responsiveness of those indicators is proportional.

16. Price elasticity of supply from point Q to point R.

% increase in quantity = 1400 – 1000 ÷ (1400+1000)/2 × 100 = 400 ÷ 1200 × 100 = 33.3

% increase in price = 256 – 128 ÷ (256 + 128)/2 × 100 = 128 ÷ 192 × 100 = 66.67

Price elasticity of supply = 33.33 ÷ 66.67 = 0.5

17. Classify the elasticity for point Q to point R as elastic, inelastic, or unitary.

When elasticity is < 1, it is considered elastic. In our case this number is 0.5, thus the elasticity for point Q to point R is inelastic.

18. Explanation for the elasticity for point Q to point R.

When the cost was raised by 66,67%, the quantity supplied raised by 33,3%. The response of the quantity supplied to changes in price was relatively low.

What did you like most about the Unit 3 learning journal?

Usually, I have great issues when dealing with numbers. At first, when I saw this task, I was extremely scared, but soon realized that I actually can complete it. This was exciting.

What did you least like about completing the Unit 3 learning journal?

As I have mentioned above, I usually experience issues when dealing with numbers. This is why even though I was excited to be able to complete it, I did not really like completing so many tasks with formulas and digits. I was too worried to make a mistake with any number which could lead to mistakes in further tasks. Thus, probably the thing I liked least about completing this learning journal is that there were too many tasks about formulas and numbers.

What is the most interesting thing have you learned about Microeconomics since beginning this course?

For me, the most interesting thing is that most points I learned about this subject are applicable to my daily life. I can also refer to Microeconomics when I want to find explanations for the things that are happening around me and even to predict further changes in my personal life.

References

Greenlaw, S. A. & Shapiro, D. (2018). Principles of microeconomics, 2e. OpenStax Rice University. Retrieved from https://d3bxy9euw4e147.cloudfront.net/oscmsprodcms/media/documents/Microeconomics2e-OP.pdf