In school you have learnt that the PED formula is % change in QD / % change in Price… Let’s see if you can push on the margins of that concept and take it deeper…

A firm faces the following demand function:

Qd = 100 − P²

where:

0 ≤ P ≤ 10

P is the price in pounds, while Qd is the quantity demanded.

Questions:

1. Explain why the price range is restricted to 0 ≤ P ≤ 10.

2. For what values of P is demand elastic?

3. Twisty bonus question: Sketch the demand curve on a standard economics diagram, with price P on the vertical axis and quantity Qd on the horizontal axis.

On your sketch, clearly label:

- the choke price (the price at which quantity demanded falls to zero)
- the maximum quantity demanded
- the section of the demand curve where demand is elastic
- the section of the demand curve where demand is inelastic

P.S roll up your sleeves and explore the question… once you’ve grappled with it for a while, if you are still stuck…Graduated hints below — but challenge yourself first! (Answer comes in the next edition! Subscribe to receive it directly to your inbox!)

Marginal gains… Answer is out in two days…

P.S.

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