Question 4 [25]

4.1. What do elasticities for supply and demand describe? As an example, describe in detail

what the price elasticity of demand measures. (4)

4.2. Suppose that the daily demand for Pepsi-Cola in South Africa can be represented by

the following equation: QD = 175 000 - 25 000P

Complete the following table by filling in the required values in the shaded spaces.

Round off the values to three (3) decimal places where applicable. (7)

Price Price elasticity elasticity Price (P) Quantity (QD) using the using the Total revenue midpoint normal point formula method 0 0 0 0.167 2 250 000 3 100 000 4 75 000