For Demand Curve D2:Change in Price from R200 to R250:Change in Price=𝑅250−𝑅200=𝑅50Change in Price=R250−R200=R50Percentage Change in Price:Percentage Change in Price=(𝑅250−𝑅200𝑅200)×100=25%Percentage Change in Price=( R200R250−R200 )×100=25%Change in Quantity if Price Increases from R200 to R250:Assume the initial quantity demanded at R200 is 𝑄1Q 1 and at R250 is 𝑄2Q 2 .\text{Change in Quantity} = Q_2 - Q_1]Percentage Change in Quantity:Percentage Change in Quantity=(𝑄2−𝑄1𝑄1)×100Percentage Change in Quantity=( Q 1 Q 2 −Q 1 )×100Determine Elasticity:PED=Percentage Change in QuantityPercentage Change in PricePED= Percentage Change in PricePercentage Change in Quantity Use the calculated percentage changes to determine if D2 is elastic or inelastic.
Question
For Demand Curve D2:Change in Price from R200 to R250:Change in Price=𝑅250−𝑅200=𝑅50Change in Price=R250−R200=R50Percentage Change in Price:Percentage Change in Price=(𝑅250−𝑅200𝑅200)×100=25%Percentage Change in Price=( R200R250−R200 )×100=25%Change in Quantity if Price Increases from R200 to R250:Assume the initial quantity demanded at R200 is 𝑄1Q 1 and at R250 is 𝑄2Q 2 .\text{Change in Quantity} = Q_2 - Q_1]Percentage Change in Quantity:Percentage Change in Quantity=(𝑄2−𝑄1𝑄1)×100Percentage Change in Quantity=( Q 1 Q 2 −Q 1 )×100Determine Elasticity:PED=Percentage Change in QuantityPercentage Change in PricePED= Percentage Change in PricePercentage Change in Quantity Use the calculated percentage changes to determine if D2 is elastic or inelastic.
Solution
To answer the question, we need to follow these steps:
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Calculate the change in price: The change in price is calculated by subtracting the initial price from the final price. In this case, the change in price is R250 - R200 = R50.
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Calculate the percentage change in price: The percentage change in price is calculated by dividing the change in price by the initial price, then multiplying by 100. In this case, the percentage change in price is (R50/R200) * 100 = 25%.
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Calculate the change in quantity: The change in quantity is calculated by subtracting the initial quantity (Q1) from the final quantity (Q2). This value is not given in the question, so we'll call it ΔQ for now.
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Calculate the percentage change in quantity: The percentage change in quantity is calculated by dividing the change in quantity by the initial quantity, then multiplying by 100. In this case, the percentage change in quantity is (ΔQ/Q1) * 100. We'll call this value Δ%Q for now.
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Determine the price elasticity of demand (PED): The PED is calculated by dividing the percentage change in quantity by the percentage change in price. In this case, the PED is Δ%Q / 25%.
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Interpret the PED: If the PED is greater than 1, the demand is elastic. If the PED is less than 1, the demand is inelastic. If the PED is equal to 1, the demand is unit elastic. Without the values for Q1 and Q2, we cannot determine whether the demand is elastic or inelastic.
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