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Pricing ACCA F5 lecture, Part 2a

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  2. 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

  5. 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?

    • 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 馃檪

  7. 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 馃檪

    • Thank you for your comments 馃檪

      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.

  8. 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?

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  11. 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

  12. 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 馃檨

    • 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.

      • 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.

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