Answer to Question #75590 in Economics for njabulo magagula

Question

3.1 Briefly explain price elasticity of demand and how it is measured. (5)
3.2 Explain with diagrams and relevant examples, THREE (3) categories of price elasticity of demand. (9)
3.3 Explain any THREE (3) determinants of price elasticity of demand.

Answer 1

3.1 Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its price change.


3.2
Types of price elasticity of demand:
1. Perfectly Elastic Demand (EP = ∞)
2. Perfectly Inelastic Demand (EP = 0)
3. Relatively Elastic Demand (EP> 1)
4. Relatively Inelastic Demand (Ep< 1 )
5. Unitary Elastic Demand ( Ep = 1)

3.3 Determinant # 1. The Availability of Substitutes
Determinant # 2. The Proportion of Consumer’s Income Spent
Determinant # 3. The Number of Uses of a Commodity
Determinant # 4. Complementarity between Goods
Determinant # 5. Time and Elasticity