solution

Calculate the price elasticity of demand for the following cases:

a. When price rises by 5 percent, quantity demanded drops by 10 percent.

b. When price rises by 10 percent, quantity demanded drops by 2 percent.

c. When price rises by 0.05 percent, quantity demanded drops by 99 percent. (Which extreme case is this approaching? Note that the price rise is a fraction of 1 percent, not 5 percent.)

d. When price rises by 99 percent, quantity demanded drops by 0.05 percent. (Which extreme case is this approaching?)

e. When price falls by 10 percent, quantity demanded rises by 2 percent.