Hey everyone. I am trying to review my past exams for my economics exam comming up and I was hoping that some people would be able to help me out with a few quesions on here. Thanks for looking!
1. Calculate consumer surplus in the market assuming equilibrium in teh market exists and that demand is linear.
The Price Elasticity of Demand (commonly known as just price elasticity) measures the rate of response of quantity demanded due to a price change. The formula for the Price Elasticity of Demand (PEoD) is:
PEoD = (% Change in Quantity Demanded)/(% Change in Price)
Check out this website, it will help you with some of the formulas. for the question about $12 toys X 500 vs $8 toys X 1100
There is always a follow up question as well if the good is price elastic, unit elastic, or price inelastic.
* If PEoD > 1 then Demand is Price Elastic (Demand is sensitive to price changes)
* If PEoD = 1 then Demand is Unit Elastic
* If PEoD < 1 then Demand is Price Inelastic (Demand is not sensitive to price changes)