Name ____________________
11 ATAR Economics
Price Elasticity of Demand – Worksheet 2
1. For each of the following goods, state whether demand is likely to be elastic or inelastic and explain why, linking it
to one or more of the factors affecting price elasticity of demand.
Good Elastic/Inelastic Explanation
Necessity
Food Inelastic
No close substitutes
Luxury good
Restaurant meals Elastic
Other close substitutes available
Necessity
Toothpaste Inelastic
Small proportion of income spent
Necessity (to those addicted)
Cigarettes Inelastic
No close substitutes available
Luxury good
Crayfish Elastic High proportion of income spent (in terms of income
spent on food)
Not many close substitutes available
Chocolate Inelastic
Low proportion of income spent
Many close substitutes available
Mars Bars Elastic
Not a necessity
Partially inelastic – loyal consumers addicted to Diet
Coke
Diet Coke Both?
Partially elastic – close substitutes (Coke Zero, Pepsi
Max etc.)
Luxury good
Flights to Bali Elastic Many available substitutes
High proportion of income spent
Luxury good
Lamborghini Elastic High proportion of income spent
Many available substitutes
Time to react to price changes
Electricity Inelastic
Not many close substitutes available
Electricity (long-term
price increase) Relatively more elastic More time to react (and change to solar for example)
Luxury good
More and more substitutes available (Netflix, Presto,
Foxtel Elastic
Stan etc.)
High proportion of income spent (on entertainment)
1. The following schedules show the weekly male and female demand for Heather’s Hair Salon:
Price of Demand Demand Total Demand Total Revenue
haircut ($) (males) (females)
100 0 50 50 5000
80 10 70 80 6400
60 20 95 115 6900
40 35 115 150 6000
20 75 140 215 4300
a. Complete the total demand and total revenue columns.
b. At what price is total revenue maximised?
Total revenue is maximised at $60
c. Calculate the price elasticity of demand for both males and females using the midpoint formula.
Price Range ($) PED Males PED Females
10/37.5 x 60/20 20/95 x 60/20
80 - 100 0.26 x 3 = 0.78 0.21 x 3 = 0.63
10/37.5 x 60/20 25/95 x 60/20
60 – 80 =0.78 0.26 x 3 = 0.78
40 – 60
20 – 40
d. Complete the following table by calculating total revenue for male and female demand.
Price ($) Total Revenue - Males Total Revenue - Females
100
80
60
40
20
e. At what price is total revenue maximised for male customers?
f. At what price is total revenue maximised for female customers?
g. Explain the link between price elasticity and total revenue.
h. Should the firm charge the same price for both males and females or should they use price discrimination? Why?
i. If a firm wants to increase its revenue, should it charge the lower price to the group with the most elastic or
inelastic demand? Why?
j. Explain why females will generally have a lower elasticity coefficient for haircuts than men.
