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Q1. 
a. The arc price elasticity of demand, where price is ‘P’ and quantity demanded is ‘Q’, is 
calculated as,
                

 =  
     
         

 =  
      
          

= 
   
     

 =  
      
     
 
 = -100% 
Taking the absolute value, the arc price elasticity of demand is 100%. 
Hence, the demand is unit elastic. 
b. 
a. The arc price elasticity of demand, where price is ‘P’ and quantity demanded is ‘Q’, is 
calculated as,
                

 =  
     
         
     

 =  
       
           

= 
  
     

 =  
    
     
 
 = -571.43% 
Taking the absolute value, the arc price elasticity of demand is 571.43%. 
Hence, the demand is price elastic. 
c. 
a. The arc price elasticity of demand, where price is ‘P’ and quantity demanded is ‘Q’, is 
calculated as,
                

 =  
     
         

 =  
        
            

= 
   
      

 =  
      
     
 
 = -53.68% 
Taking the absolute value, the arc price elasticity of demand is 100%. 
Hence, the demand is price inelastic. 
Q2. 
Price elasticity of demand is a measure of the responsiveness of the quantity of a good 
demanded to the changes in its price. The demand for a product is said to be price elastic 
when the percentage change in quantity demanded is greater than the given percentage 
change in price. The major determinant of price elasticity of demand is whether the product is 
narrowly defined or broadly defined as in the case of product overall. There are alternatives 
available for a narrowly defined product but not for a product overall or a broadly defined 
one. From this, it follows that it is expected that the price elasticity of demand for the product 
of an individual firm would typically be greater than the price elasticity of demand for the 
product overall. This is mainly due to the fact that there are substitutes available for the 
product of an individual firm but there are no major substitutes for a product overall. This 
makes the demand for such a product of an individual firm price elastic. For example,

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