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97 
Solution 
We are asked to calculate the elasticity at a particular price. We assume that the demand curve is a 
straight line. 
At a price of $1.20, annual demand is 800,000 units. For a price rise: 
% change in demand
800,000
70,000
× 100% = 8.75% (fall) 
% change in price
10c
120c
× 100% = 8.33% (rise) 
Price elasticity of demand at price $1.20 =
8.33
8.75

= – 1.05 
Ignoring the minus sign, the price elasticity at this point is 1.05. Demand is 
elastic
at this point, 
because the elasticity is greater than 1. 
QUESTION 
Point price elasticity of demand
 
If the price per unit of x rises from $1.40 to $1.60, it is expected that monthly demand will fall from 
220,000 units to 200,000 units.
What is the point price elasticity of demand when the price is $1.40? 
ANSWER 
We assume that the demand curve is a straight line. 
At a price of $1.40, demand is 220,000 units. 
For a price rise of 20 cents to $1.60: 
% change in demand
20,000
220,000
× 100% = 9.09% (fall) 
% change in price
20c
140c
× 100% = 14.29% (rise) 
Price elasticity of demand = 
–
9.09
14.29
= – 0.64 
or 0.64 ignoring the minus sign. 
Demand is 
inelastic
at this point, because it is less than 1. 
QUESTION 
Range of elasticity
 
A shop sells 100 shirts each month at a price of $20. When the price is increased to $24, the total 
sales revenue rises by 14%. Within which range does the price elasticity of demand lie? 
A Under 
0.15 
B 
Greater than 0.15 and less than 0.5 
C 
Greater than 0.5 and less than 1.0 
D 
Greater than 1.0 
ANSWER 
B 
Total revenue of $20 = 100 

$20 = $2,000 
Total revenue at $24 = $2,000 

1.14 = $2,280 
Number sold at $24 = $2,280 

24 = 95 
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