What is the price elasticity of demand? What does it mean to be elastic and give

Question

What is the price elasticity of demand? What does it mean to be elastic and give an example?

If the price of Brand X straight leg distressed jeans is reduced from $100 to $80 a pair, and quantity demand increases from 500 to 1,000 what is the coefficient of demand elasticity? Show your solution.

Suppose you own the retail shop that sells Brand X jeans in question (1) above, did you make the right decision of reducing prices by 20%? Fully explain your answer and show your solution.

How would you interpret a vertical demand curve (in terms of elasticity)? Can you think of a product/service where demand curve could be vertical?

What are two reasons why governments impose an excise tax on some/specific products? Support your answer by including an example of a product where an excise tax is charged.

Explanation / Answer

Price elasticity of demand is a measure of the responsiveness of the demand for a good to changes inits price. Elasticity of demand is a number and it does not depend on the units in which the price of the good and quantity of the good are measured coefficient of demand elasticity =q1-q0/qo /p1-p0/p0 1000-500/500/80-100/100 =-5 price elasticity of demand is a negative number since the demand for good is negatively related to the price of a good

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