GDB ECO401 SOLUTION UPDATED

If PEoD > 1 then Demand is Price Elastic (Demand is sensitive to price changes)
· If PEoD = 1 then Demand is Unit Elastic
· If PEoD < 1 then Demand is Price Inelastic (Demand is not sensitive to price changes)


If we notice the figures even small change of price from 2 to 2.1 will change the demand from 102 to 85 which shows that coffee is price elastic. To make sure, we look at the real time calculation.


PEoD = (% Change in Quantity Demanded)/(% Change in Price)

PEod = -3.33
· PEod = -3.33 in case of price elasticity of demand we are concern with absolute value so we are ignoring the -ve sign
· If PEoD > 1 then Demand is Price Elastic (Demand is sensitive to price changes)