1. Quantitative Demand Analysis Example Problem
Managerial Economics
Kyle J. Anderson
Kelley School of Business
Indiana University

2. The Elasticity of Jeans
Kelley School of Business

3. The Own Price Elasticity of Demand for Jeans:
Demand Equation:
Qx = 300 – 8Px + 2Py + 5M
Py = $35, M = $40
What is the own price elasticity of demand?
At the current price of $40.
Simplifying:
Qx = 300 – 8Px + 2(35) + 5(40)
Qx = 570 – 8Px
Kelley School of Business

4. The Own Price Elasticity of Demand for Jeans:
Demand Equation:
Qx = 570 – 8Px
What is the elasticity of demand at Px = $40
Demand is on the elastic portion of the demand curve.
Kelley School of Business

5. The Own Price Elasticity of Demand for Jeans:
What about at a price of $50?:
Qx = 570 – 8Px
What is the elasticity of demand at Px = $50?
With a higher price, demand is more elastic.
Kelley School of Business

6. Elasticity and Linear Demand
As we slide up the demand line, demand is more elastic.
P=50, E = -2.35
Price
P=40, E = -1.28
Elastic
Unitary Elastic
Inelastic D
Quantity
Kelley School of Business