Answer Happy

400 500 Price (£) Quantity demanded (Qd) £100 200 £95 £90 £85 600 £80 700 £75 (1) Explain what is the price elasticity of demand (PED) and how is it calculated? Write down the full formulae of PED that is described in class (proportionate change formulae). (3 marks) 800 () Assume that the current market price for Good A is £90 and 500 units is demanded. Calculate the PED if the price decreases to £85. (Note: You must show all your calculation step by step) (4 marks) = () is the demand for Good A elastic, unit-elastic, or inelastic? Evaluate the value of the PED and explain your answer using the concept of elasticity. (3 marks) (iv) What would the slope of the demand curve for Good A look like? Based on your calculation and your analysis, draw the demand curve. (Hint: Relatively flat, steep or constant demand curve) (1 mark) (V) Suppose that the cross-price elasticity between good A and Good Bis - 1.34. Using the concept of cross-price elasticity explain the relationship between Good A and Good B and give an example. (2 Marks) (vi) Suppose that when Peter's income increases by 5%, his consumption of Good A increases by 10%. For Peter, what kind of good it is? Explain your answer (hint your answer must refer to income elasticity of demand)