Question

A study of the price elasticities of products sold in supermakets contained the following data: Products and their price elasticity of demand are as follows:
Soft drinks -3.18
Canned soup -1.62
Cheese -0.72
toothopaste -0.45
A. For which products is the demand inelastic? Descuss reasons why the demand for each product is either elastic or inelastic.
B. Use the information in the table to prdict the change in the quantity demanded for each product following a 10% price increase.

Answer 1

A. and B. are the questions btw

Answer 2

Okay, Ganja, I'm reading about elasticity from the wikipedia page.
http://en.wikipedia.org/wiki/Price_elasticity_of_demand
From the first paragraph:
"In general, the demand for a good is said to be inelastic (or relatively inelastic) when the PED is less than one (in absolute value): that is, changes in price have a relatively small effect on the quantity of the good demanded. The demand for a good is said to be elastic (or relatively elastic) when its PED is greater than one (in absolute value): that is, changes in price have a relatively large effect on the quantity of a good demanded."

Answer 3

Second paragraph, that is.

Answer 4

I figured this:
Cheese and toothpaste are inelastic because they are under -1.0 for a their price elasticity which gives them a good amount of room to change their prices without drops in revenue. Visa versa goes for canned soup and especially soft drinks as they are above -1.0 which means they have elastic demand prices.

Answer 5

Below*

Answer 6

Yes. Well said. Now you're asked to speculate on reasons for those things. Basically you probably want to say something like, "People know they don't really need soda, so if it's too expensive than they just don't buy it. With toothpaste though, they gotta have it so their teeth don't rot."

Answer 7

The demand with a 10% increase in price will rise for cheese and toothpaste and will lower and/or cease demand with canned soup and soft drinks.

Answer 8

Not quite, actually. If the demand is expect to increase along with price, then it will have a positive elasticity.

Answer 9

That rarely happens.

Answer 10

Basically, the elasticity is a number that tells me, "If I up my price by 1%, how much will the demand decrease?"
So if you want to figure out how the demand decreases when you up the price by 10%, you'll want to multiply the elasticity by 10.