Applied Economics for Managers -

Running head: ECONOMICS FOR MANAGER
ECONOMICS FOR MANAGER
Name of the Student
Name of the University
Author Note

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ECONOMICS FOR MANAGER
Table of Contents
Answer to question (a)...............................................................................................................2
Answer to question (b)...............................................................................................................6
Answer to question (c)...............................................................................................................9
References................................................................................................................................14

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ECONOMICS FOR MANAGER
Answer to question (a)
According to the general law of demand, if the commodity price increases as its
demand decreases or vice versa keeping all other factor constant (ceterius paribus). The
magnitude of demand changes due to change in per unit price is called price elasticity of
demand. If there is a change of percentage in demand is greater than the percentage change in
price, the product is known to be elastic, whereas if there is change in the percentage of
demand is less than the percentage change in price then the product is known as inelastic.
Price elasticity of demand (Ep) = % change in demand / % change in price.
If the elasticity is more than one the product is said to be elastic and if the value is less than
one the product is inelastic.
Types of elasticity of demand are as follows:
1. Perfectly Elastic demand (Ep = ∞)
The demand is usually said to be perfectly elastic when quantity change in demand
increases by a large or infinite amount due to little or no change in the amount of price (Levi,
Sabuco & Sanjuán, 2018). It is impractical in real life.

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ECONOMICS FOR MANAGER
Figure: Perfectly elastic demand
In the above figure, D is the demand line, Y-axis measures the price and X-axis
measures the quantity demanded (Mpakaniye & Paul, 2016). Thus, it can be seen that the
demand of the commodity increases with no change in the price of the commodity.
2. Relatively Elastic Demand (Ep > 1)
When the magnitude of quantity changed in demand is more than the magnitude of
amount change in price it is said to be relatively elastic demand (Gilroy et al., 2018). Say,
price of the television in the market falls by 5%, which led in increase in the demand of
television by 15%. So here, the elasticity of the demand will be 15/5 that is three. This being
greater than one makes the demand relatively elastic.