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May says

Dear Tr.John,

I am not clear in the lecture which one is dollar or units. Thanks.

Best,

May

John Moffat says

Which one of what?

May says

For example

a=$100+($0.5 x 1000 units) = $600

Is it not necessary to put either dollar or units?

Thanks.

John Moffat says

No – why should it be necessary? You don’t have the time in the exam to keep writing units or dollars (and it the MCQ’s it is irrelevant anyway since nobody will look at your workings 🙂 )

May says

Noted with thanks.

John Moffat says

You are welcome 🙂

pmac88 says

Hi thank you for the great lectures and notes. Just a quick question, I understand how to calculate the price elasticity of demand however I get -32 rather 32 for the answer to part a. In the answers it’s showing as 32. Similarly with part b).

For %change in price= (15.5-16)/16*100=-3.125%

If it is -32 does this mean that demand is not very sensitive to price changes as the PED is low?

Thanks for your help

P

John Moffat says

Arithmetically, the elasticity will always be negative (because a lower price will mean higher demand, and vice versa), so we don’t usually bother writing the ‘-‘.

A higher PED (ignoring the ‘-‘) means that the demand is more sensitive to the demand.

pmac88 says

Thank you for clarifying

John Moffat says

You are welcome 🙂

ABIGAIL says

Nonetheless your lectures are enjoyable, makes easy understanding too… (though you should drink water more often whiles lecturing)…lol

ABIGAIL says

please Mr. Moffat, why are there not any download tab or button to the lecture videos?…

I wish I could download them and be able to watch wherever I am (without the internet connection)

John Moffat says

Lectures can only be watched online – it is the only way that we can keep this website free of charge.

Abdul says

Hey there John, could you help me out here? if the price is increasing from $12 to $13, its a $1 increase. and with this change the demand falls from 16000 to 13500 units i.e a -2500 change, according to the gradient rule, +1/-2500= -0.0004? so wouldn’t b be -(-0.0004)=+0.0004?

John Moffat says

On the formula sheet b is defined as the change in price over the change in demand. It is minus b in the equation to reflect what you have written.

Look at the resulting equation and think about it – it would be nonsense if higher demand went with a higher selling price (which is what would happen if you did what you want to do).

This is not a maths exam – it is meant to be practical 🙂

furqan.90 says

Hi,

Why didnt we just divide 1 by 2500 to get b?why did we have to use the 2 equations?

furqan.90 says

Never mind 😛 you answered it in the lecture

John Moffat says

🙂

Wasiq says

Hello Sir,

First of all i am going to comment here for the very first time. I never saw such a outstanding lectures in my life. And most importantly you are providing with these helpful lectures to all students of A.C.C.A . I am very thankful to you. Now i have a question, Dear Sir in your notes, you stated the formula of PRICE ELASTICITY OF DEMAND= % change in demand divided by % of change in price but while calculating B , you took change in price over change in demand. Are they separate things may be i am misunderstood ? and if they aren’t then why there is a change in formula ?

Thanks in advance 🙂

John Moffat says

Thank you for your comments 🙂

They are two different things. B measures how the price and demand change with each other. Elasticity looks in percentages to measure how big or small the effect of a change on price will be.

Kerri - Ann says

Good Day John,

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

So…

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?

John Moffat says

Not quite.

The top bit is correct, but for the demand to increase the price has to fall from 16 to 15.5, and so the bottom of the formula should be (15.5-16)/16.

The answers to all of the examples are at the back of the Lecture Notes (see the contents page) 🙂

Kerri - Ann says

Or so the demand increases but the price decreases and so the formula would change to the bottom. Got it.Thanks

Thanana says

Sorry for using this forum, but if possible can you guys change the VIMEO player or uploader to youtube. I have been experiencing a tough time in watching the videos in this player for the past 3 weeks, but when it is the ones uploaded in youtube i don’t have problems. I also viewed the technical help you offer and realized all my players are up to date, and the network has a good strength.

opentuition_team says

Sorry, if you can watch YouTube videos, than Vimeo should all work.

You don’t even mention what browser or device you are using.. Or what country

YouTube js blocked in far more countries than Vimeo, and we won’t change to YouTube im afraid

Thanana says

Thanks for the reply. Am using Adobe Flash player (updated) and also using google crome (updated). Since you are not going to change is there any other option.

opentuition_team says

Try tor browser

fahim231 says

I am totally confused …….during the formula when he arrives at – 1 = 0 -2500b

how on earth did he manage to do 1/2500 ? when they are minus numbers ?

John Moffat says

‘He’ is me!!

If -1 = -2500b

then divide both sides by -2500, and 1/2500 = b

(You should know from school that dividing a negative number by a negative number results in a positive number)

Samoar says

I wish there was a like button 🙂

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

Sakina 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 🙁

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.

Sakina 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.

Chris says

I do not like this part of the exam at all… 🙁

manonaseriousmission says

I’m with you.. It’s a part with the paradox – seems obvious yet so obscure and elusive

Chris says

Bad times my friend. Second time around I’m understanding it more. Whether that has something to do with not doing two papers at once which isn’t diluting my time or not… We shall see.

ATB

Ali says

Dear John,

For example 4, may I ask what would be the action if, a, was left as a positive figure and not 0?

Many thanks

John Moffat says

I am not sure what you mean, because a is not zero.a is the selling price that would result in the demand being zero.

As the selling price is reduced the demand will increase.

Carmel says

Hi John,

Example 4, page 28. I’m not quite sure how you got 18.4 by adding 6.4 to both sides of the equation. Can you clarify please?

Thanks

Carmel

John Moffat says

They sell 16,000 units at a price of $12.

The maximum price (a) is the price at which the demand is zero – i.e. demand lower by 16,000.

For every 2,500 lower demand, the price is increased by $1. So for 16,000 lower demand, we need to increase the price by 16,000/2,500 x $1 = $6.40

So maximum selling price (a) = 12 + 6.50 = $18.40

Carmel says

Of course, thanks John.

John Moffat says

You’re welcome, Carmel 🙂

vikki 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?

Thanks

Vikki

John Moffat says

The best way to remember it is : a = current selling price + b (current demand)

vikki says

Sorry can you expand please selling price is £100 plus current demand? Isn’t that 20,000 pa because b = £2/2000.

vikki says

I’ve woken up sorry I didn’t multiply 0.001 with demand of 20000 to give 20+100=120

anam says

Hi i have a lil doubt… minus minus is plus …so how we got -2500 b …we supposed to add 16000 and 13500 and get -29500 instead

John Moffat says

Minus minus is indeed a plus.

However, we are taking minus 16,000 plus 13,500.

-16000 + 13500 = -2500

(look again – it is minus 16000!)

tauraiversatile says

Good job! Thank you Lecturer you are so loud and clear!

florencenkrumah28 says

i love this. thank you

shaikhazary 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.

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.

sotor says

Thank you very useful lecture, any chance adding/providing video lecture on Example 3 Price elasticity? Its on the notes.

Dthind says

Very nicely explained…..:))

irum says

very very easy way to calculate the b ,a….?the formula in books is very hard to remember.

mikelena says

Good Explanation. Good Job!

zhuxiaoyu110 says

What’s wrong? The video always break down in process? How to avoid this. Thanks!

musema says

Example 5 says reduction in price causes increase in demand rather than increase in price and decrease in demand. So shouldn’t the equation be 10-0.01Q??

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.

natasya says

As I see, “Price elasticity” topic is not mentioned in the videos to chapter 7. Or I missed it?

John Moffat says

@natasya, You are right – it is not mentioned. I will re-record it shortly but until then you can find it in the course notes.

akkianjana says

lovely. good job

sweetusudu says

@

hasnaat hai

Mugadza says

good work from you guys.may God bless you

patsylee says

very well explained, great job!

esthernky says

thanks,i perfectly understood