Elasticity Calculations:
Calculate the Price Elasticity of Demand or E for each of two scenarios using the formulas below.
Formulas:
% change in quantity = (New Quantity - Old Quantity/ Old Quantity) x 100
% change in price = (New Price - Old Price/ Old Price) x 100
E = % change in quantity/ % change in price
Note: When using these formulas, some results will come out as negative numbers. When stating the elasticity result, use the absolute value, which ignores the negative sign (e.g., for either 20% or -20%, state the answer as 20%.)
Scenario 1:
Sally usually buys 4 loaves of bread at $1.50 a loaf for her family, which includes her husband and three teenage boys. When she is in the store to get her groceries for the week, she sees that the bread that she usually buys now costs $2.00 a loaf. She is hesitant to buy as much because the price is higher, but her family really likes the brand of bread. She decides to buy 3 loaves.
Scenario 2:
The Jones family of eight likes to take day trips close to home. They live 60 miles from a popular small amusement park. Last summer it cost the family $50 to go to the amusement park for a day, and they went 4 times during the summer. A large amusement company who added a lot of new rides bought the amusement park. The new company raised admission prices. This summer it costs the family $80 to go to the amusement park for a day. Because of the increase in price, The Jones' decide to go to the amusement park only 1 time this summer.
Part 2: Elasticity Short Answer:
Based on your calculations on part 1, answer the following five questions for both scenarios:
1. What is an inelastic vs. an elastic product?
2. Based on your calculations is either product inelastic? Why?
3. Based on your calculations is either product elastic? Why?
4. How do consumer factors affect elasticity of a product? For example, the price that a huge fan would be willing to pay to purchase a ticket to a rock concert where the fan gets the chance to meet the lead singer after the concert.
5. List at least five products that you personally consider inelastic in your life and at least five products that you personally consider elastic in your life. Explain why you consider these products elastic or inelastic from your perspective.