Exam (elaborations)
DSC1520 Exam (elaborations) QUESTIONS AND ANSWERS call, , or text , 0717 513 114,
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DSC1520 Exam (elaborations) QUESTIONS AND ANSWERS call, , or text , 0717 513 114,
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Point elasticity is the price elasticity of demand at a specific point on the demand curve instead ofover a range of it. In economics, elasticity measures the percentage change of one economic variable
in response to a percentage change in another. point elasticity is thus the property where a change
in the price of a good or service will impact the product's demand. To get point PED we need to re-
write the basic formula to include an expression to represent the percentage, which is the change in
a value divided by the original value, as follows:
We can then invert the denominator, to get:
From the question:
∆𝑞 1
= −
∆𝑝 3.5
And when 𝑝 = 18; 𝑤𝑒 𝑔𝑒𝑡 18 = 60 − 3.5𝑞,
which gives 𝑞 = 12, 𝑏𝑦 𝑚𝑎𝑡ℎ𝑒𝑚𝑎𝑡𝑖𝑐𝑎𝑙 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛
1 18
point elasticity = − 3.5 × 12 = −0.43
BMZ Academy 0717 513 144/ 068 053 8213/ 062 262 1185
,From the question:
∆𝑞
= −2.5
∆𝑝
And when 𝑝 = 20; 𝑤𝑒 𝑔𝑒𝑡 𝑄 = 80 − 2.5𝑃,
which gives 𝑞 = 30, 𝑏𝑦 𝑚𝑎𝑡ℎ𝑒𝑚𝑎𝑡𝑖𝑐𝑎𝑙 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛
20
point elasticity = −2.5 × 30 = −1,7 𝑤ℎ𝑜𝑠𝑒 𝑚𝑎𝑔𝑛𝑖𝑡𝑢𝑑𝑒 |−1,7| = 1,7 > 1, 𝑎𝑛𝑑 𝑑𝑒𝑚𝑎𝑛𝑑 𝑖𝑠 𝑒𝑙𝑎𝑠𝑡𝑖𝑐
NB: please take note demand is elastic if elasticity is greater than 1, and inelastic when less than
one, and unitary when elasticity ois exactly equal to one, save for perfectly elastic when
elasticity is infinity and perfectly inelastic when elasticity is zero.
BMZ Academy 0717 513 144/ 068 053 8213/ 062 262 1185
, Given subsidy, the cost on suppliers decrease, such that the price paid by suppliers to supply will fall
by the amount of subsidy , hence the supply equation can be rewritten to be
𝑃𝑠 − 4
= (20 + 4𝑞) − 4
To get equilibrium, we equate demand to supply (with a subsidy). i.e., this is a point where the
quantity and the prices for which consumers and suppliers are willing to trade are the same. Hence
50 − 0.6𝑞 = 16 + 0.4𝑞
𝑄 = 34
(𝑏𝑦 𝑚𝑎𝑡ℎ𝑒𝑚𝑎𝑡𝑖𝑐𝑎𝑙 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛, 𝑎𝑙𝑠𝑜 𝑛𝑜𝑡 𝑡ℎ𝑒 𝑤𝑢𝑎𝑘𝑛𝑖𝑡𝑖𝑡𝑦 ℎ𝑎𝑠 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒, 𝑠𝑢𝑐ℎ 𝑖𝑠 𝑡ℎ𝑒 𝑒𝑔𝑓𝑓𝑒𝑐𝑡 𝑜𝑓 𝑎 𝑠𝑢𝑏𝑠𝑖𝑑𝑦)
To get price, equate 34 into any pf the above functions and get R29.60= price
Please note, this is consistent with theory, a subsidy increases quantity and reduces price.
BMZ Academy 0717 513 144/ 068 053 8213/ 062 262 1185
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