1. avatar says

    Good Day John,

    Hope all is well. Glad to be back with you.


    I am doing Example 3 in Chapter 7 (Price Elasticity of Demand) and I am a bit confused.

    The PED is = % change in demand / % change in price

    Therefore to answer the example my formula should read:

    ((D2- D1)/D1))*100 ((200-100)/100))*100 = 100
    ————————– ——————————– ——- = 30.12
    ((P2- P1)/P1))*100 ((16 – 15.5)/15.5))*100 = 3.32

    Am I correct?

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  3. Profile photo of John Moffat says

    If we start from 16 and demand of 100, then changing to 15.5 means that demand goes up from 100 to 200 – a percentage change of (200-100)/100 = 100%

    Price goes from 16 to 15.5 which is a percentage change if (16 – 15.5)/15 = 3.33%

    The formulae you wrote were wrong. It should be P2 – P1 / P1; and D2 – D1 / D1

  4. avatar says

    hello sir, i am a bit confused with example 3 i used the formula
    % change in price=(P1-P2)/P2*100
    % change in demand=(Q2-Q1)/Q2*100

    when i am applying this formula to the question example 3 i am getting the answer as 16 for the first one and 7.25 for the second one. And behind the book its different answers which do not match mine. i am very confused sir please reply :(

    • Profile photo of John Moffat says

      I am not sure what to answer, because the solution at the back of the notes shows the workings.

      You do not say how you managed to arrive at 16 and 7.25.

      If you say how your workings were different from the answer then I will try and explain where you have gone wrong.

      • avatar says

        P1 is 16 P2 15.5 Q1 100 Q2 200

        QD%= (200-100)/200*100=50%
        PRICE%= (16-15.5)/15.5*100=3.225%

        So the formula applies as PED=%QD / %PRICE
        50/3.225= 16.

  5. avatar says

    I’m stuck on example 6 chapter 7. Selling price £100 p.u demand 20,000 per annum. For every £2 change in selling price demand will change by 2000 units. On looking at the answer P=120-0.001Q I get where the 0.001 comes from but where do you get the 120 from?


  6. avatar says

    Conventional way of calculating the slope of the demand curve is Changes in Quantity/Changes in Price. Why does ACCA Text use Changes in Price/Changes in Quantity? However, I do understand a slope of a straight line is Changes in Y/Changes in X.

    • Profile photo of John Moffat says

      I don’t know why you say the conventional way of calculating the slope is change in demand/change in price.

      For the price elasticity of demand, then it is demand / price, but the conventional price/demand equation is P = a – bQ for which the slope is b which is change in price/change in demand.

    • Profile photo of John Moffat says

      @musema, Because we assume that the relationship is linear, a reduction in price causes an increase in demand, and an increase in price causes the same reduction in demand.
      The equation cannot be P = 10 – 0.01Q, because that would mean that the current demand of 2000 would give a selling price of 10 – 20 = -10!!!
      The lecture is correct.

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