Theory question 101
ElasticitySection A (answer one question only from this section)
Given the figures below:
Price of commodity A in January = ₦5.00; Price of commodity A in February = ₦7.00
Quantity of A bought in January = 20kg; Quantity of A bought in February = 16kg
(a) Calculate: (i) Percentage change in quantity bought (%) (ii) Percentage change in price of A (%) (iii) Coefficient of price elasticity of demand (e)
(b) From your answer: (i) Is the demand elastic or inelastic? (ii) How do you know this?
Show the model answer
(a)(i) Change in quantity = 20 − 16 = 4kg; 4/20 × 100 = 20% (a fall)
(ii) Change in price = ₦7 − ₦5 = ₦2; 2/5 × 100 = 40% (a rise)
(iii) e = % change in quantity ÷ % change in price = 20 ÷ 40 = 0.5
(b)(i) Demand is inelastic.
(ii) The coefficient (0.5) is less than one: quantity changed proportionately less than price.
Always divide the change by the original (January) figure.