S4 ECONOMICS

Chapter 10
Price elasticity of Demand and Supply

S4____ Name: _________________________ ( )

10.1 Introduction
recall the concept of total revenue
 To producers, total revenue (TR) = price (P) of the product x quantity (Q) of the product sold.
 To consumers, it is called the total expenditure (TE).
 It is assumed that total revenue equals to total expenditure.

Study Case 1 and Case 2 before we go into the concept of price elasticity of demand.

Case 1
Originally, it costs $65 for double scoop cone.
After the promotion, people can buy two double scoop at $65, i.e., price per cone
decreases. By the law of demand, the quantity demanded for a double scoop cone
increases.

Do you think Haagen-Dazs would necessarily receive a lower total revenue? Why?

 the decrease in price may lead to a(n) decrease in total revenue; but
 the increase in quantity demanded may lead to a(n) increase in total revenue
 the total revenue may increase if the gain in total revenue is larger than the
loss in total revenue
 the final change in total revenue depends on price elasticity of demand

Case 2
As the effect of changing the price on total revenue is uncertain, study the following and suggest under what
condition an increase in price leads to a higher total revenue.

Case Explanation to the change in total revenue

When the price of electricity increases, people
would not reduce much of their consumption of
HK Electric is the only electricity provider on
electricity from HK Electric because there are no
1 Hong Kong Island. It claims that it earned more
substitutes / electricity is necessity.
revenue when it increases the price of electricity.

When the price of bubble tea from Gong Cha

increases, people would reduce more of their
Gong Cha is one of the bubble tea stores in Hong
consumption of bubble tea from Gong Cha because
2 Kong. It claims that it earned lower revenue when
there are a lot of substitutes / I can just don’t drink
it increases the price of the bubble tea.
bubble tea to keep fit.

The elasticity of demand for electricity from HK Electric and that for bubble tea from Gong Cha is different.

Price Elasticity of Demand & Supply Page 2

10.2 Definition and Calculation of Price Elasticity of Demand
By the law of demand, we know that when price of a good increases, its quantity demanded decreases, vice
versa, ceteris paribus.

 Price elasticity of demand measures how responsive the quantity demanded of a good is to a change
in its price.
 In laymen terms, it means the responsiveness of consumers to a change in price of a good.
 we measure the responsiveness of consumer by comparing the percentage change in quantity
demanded and the percentage change in price.
e.g., When the price of a good increases,
if the percentage decrease in quantity demanded is larger than the percentage increase in price, the
consumers are said to be (responsive / not responsive) to the increase in price.

Refer to Case 2,
HK Electric Gong Cha
customers are … to price change. relatively not responsive relatively more responsive

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑

Price elasticity of demand coefficient (Ed) = 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒

 When price of a good increases, the quantity demanded decreases. Ed is therefore always negative.
 For simplicity, we usually consider the absolute value of the coefficient and ignore the negative sign.

Arc elasticity of demand** (calculation required in DSE)

 Measurement of price elasticity of demand over a certain price range of demand curve
 We use average price & average quantity demanded as the denominators for calculating the
percentage changes

𝑄𝑑1 − 𝑄𝑑0
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 (𝑄𝑑0 + 𝑄𝑑1)/2 𝑥100%
𝐸𝑑 = =
𝑃1 − 𝑃0
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 𝑥 100%
(𝑃0 + 𝑃1)/2

Illustration in a graph
Calculate the price elasticity of demand for each price
range:
a) When price decreases from $9 to $8,
quantity demanded increases from 1 unit to 2 units.
elasticity of demand = 66.67% / -11.76% = -5.67

b) When price decreases from $6 to $4,

quantity demanded increases from 4 units to 6 units.
elasticity of demand = 40% / -40% = -1

c) When price decreases from $2 to $1,

quantity demanded increases from 8 units to 9 units.
elasticity of demand = 11.76% / -66.67% = -0.18
Price Elasticity of Demand & Supply Page 3
2020 DSE Q11 (34%)
When the price of Australia’s red wine decreases from $70 to $50, the quantity demanded increases from 100
units to 122 units. What is the arc elasticity of demand for Australia’s red wine within the above price range?
A. 0.59
B. 0.77
C. 1.30
D. 1.68

Extended: Why we use average numbers as the denominators?

 If we use the usual way to calculate percentage changes to find the elasticity over a certain price
range, there is one problem:
 The elasticity of demand would be different if the direction of the change in price is different because
the base of the percentage change would be different.

Illustration:
If the price of a product decreases from $10 to $8, leading to an increase in quantity demanded from 40 to
60 units, then the price elasticity of demand (Ed) can be calculated as:
 % change in quantity demanded = [(Qd2 – Qd1) / Qd1] *100% = [(60 – 40) / 40] *100% = 50%
 % change in price = [(P2 – P1) / P1] *100% = [(8 – 10) / 10] *100% = -20%
 | Ed | = | 50% / -20% | = 2.5
Since we’re concerned with the absolute values in price elasticity, the negative sign is ignored. You can
conclude that the price elasticity of this good, when the price decreases from $10 to $8, is 2.5.

One of the problems with the price elasticity of demand formula is that it gives different values depending
on whether price rises or falls.
If you use different start and end points in our example above - that is, if you assume the price increased
from $8 to $10, and the quantity demanded decreased from 60 to 40, the Ed will be:
 % change in quantity demanded = [(40 – 60) / 60] *100% = -33%
 % change in price = [(10 – 8) / 8] *100% = 25%
 | Ed | = | -33% / 25% | = 1.32, which is different from 2.5

10.3 Types of Price Elasticity of Demand

1. Elastic demand
 The percentage change in quantity demanded of the good is larger than the percentage change in
price.
i.e., consumers are responsive to price. (price-sensitive)
 Numerical expression: Ed > 1
This would be more similar to the case of (HK Electric / Gong Cha) in
Case 2.
[i.e., the percentage decrease in quantity demanded is larger than
percentage increase in price]

Price Elasticity of Demand & Supply Page 4

2. Perfectly elastic demand [extreme case]
 An extremely small change in price causes an infinite change in
quantity demanded.
 In other words, quantity demanded is extremely responsive to
any change in price.
 Numerical expression: Ed = ∞

3. Inelastic demand
 The percentage change in quantity demanded of the good is smaller than the percentage change in
price.
i.e., consumers are not responsive to price.
 Numerical expression: Ed < 1

This would be more similar to the case of (HK Electric / Gong Cha) in
Case 2.
[i.e., the percentage decrease in quantity demanded is smaller than
percentage increase in price]

4. Perfectly inelastic demand [extreme case]

 A change in price might not cause any change in the quantity
demanded.
 Peter will consume 1 cup of coffee per day regardless of price.
 In other words, quantity demanded is unresponsive to any
change in price.

 Numerical expression: Ed = 0

5. Unitarily elastic demand

 The percentage change in quantity demanded of a good is equal
to the percentage change in its price.

 Numerical expression: Ed = 1

Price Elasticity of Demand & Supply Page 5

Summary
Numerical Explanation
Types of Ed
expression
Perfectly totally not responsive to price change
Ed = 0
inelastic  When price increases, the quantity demanded does not decrease at all.
relatively less responsive to price changes
Inelastic 0 < Ed < 1  When price increases, the quantity demanded decreases.
 % decrease in Qd is smaller than % increase in P.
Unitarily
Ed = 1 the % decrease in Qd is equal to % increase in P.
elastic
relatively more responsive to price changes
Elastic Ed > 1  When price increases, the quantity demanded decreases.
 % decrease in Qd is larger than % increase in P.
Perfectly very responsive to price changes
Ed = ∞
elastic  When price increases, the change in quantity demanded is infinite.

10.4 Factors affecting the Price Elasticity of Demand

1. Availability of substitutes
 The greater the number of substitutes available, the more elastic the demand for a good.
 An increase in a price would cause the quantity demanded to fall by a (greater / smaller) extent as
people can shift to consume substitutes.

Number of substitutes can be affected by -

whether the good is a necessity
 necessity means it has very few or no substitutes
 demand for the good tends to be less elastic
e.g., water, electricity

whether a person is addicted to a good

 the more addicted a person is to a good, the less elastic the demand for the good.
e.g., the demand for drugs for drug addicts is relatively inelastic.

P.S. The demand for cigarettes maybe inelastic, but the demand for a particular brand of cigarettes
can be elastic.

2. Proportion of income spent on a good

 The smaller the proportion of income spent on a good, the less elastic the demand for the good.
 Because the change in price has a small impact on total expenditure - people tend to be less sensitive.

Suppose the bus fare increases by 10%, it is likely that many consumers can still afford it as it does not
have a great impact on the total expenditure of consumers. The quantity demanded (would / would not)
decrease much.

Price Elasticity of Demand & Supply Page 6

3. Time for adjusting consumption patterns
 Over a long period of time, people can get more information about substitutes and change their
consumption patterns.
 The demand would be more elastic.

 In a short period of time, people may find it difficult to find substitutes for a good and tend to stick
with the original good even price increases.
 The demand would be more inelastic.

For example, if the price of gasoline increases,

 the demand for it tends to be more inelastic in the short run.
 People may walk more, ride a bicycle for a short distance, but still uses gasoline for longer distances.

In the long run, people may have more options, for example buying a more fuel-efficient car model,
changing to electric cars etc.
 The demand for it tends to be more elastic.

4. Number of uses
 If the good has a variety of uses,
 When price increases, users from different groups will buy less of it, leading to a larger decrease in
quantity demanded - more elastic.

Steel can be used to produce cars, construction materials, cooking utensils etc.
When the price of steel increases, users from different groups will buy less of it → leading to a relatively
larger decrease in market quantity demanded (when compared to goods with fewer uses).

5. Durability (whether it has to be purchased frequently)

 The demand for durable goods tends to be more elastic.
 When price increase, people would keep using the durable good at home and
postpone the purchase of a new good. (e.g., TV sets, refrigerators, etc.)

 If the good is non-durable, (e.g., toilet paper),

even if the price increases, people have to buy to replace the stock. The effect on
quantity demanded would be relatively smaller. The demand tends to be more
inelastic.

2014 DSE Q13 (60%)

Which of the following would reduce the elasticity of demand for the transport service of the Airport Express?

A. There are more airport bus routes to different districts.

B. Vans are not allowed to pick up passengers at the airport.
C. The fare of the Airport Express is raised.
D. The maintenance cost of the Airport Express trains increases.

Price Elasticity of Demand & Supply Page 7

10.5 Relationship between Price Elasticity of Demand and Total Revenue
Recall Case 2
Gong Cha is one of the bubble tea stores in Hong Kong. HK Electric is the only electricity provider on Hong
It claims that it earned lower revenue when it increases Kong Island. It claims that it earned more revenue when
the price of the bubble tea. it increases the price of electricity.
Now, we can use the concept of elasticity to explain the phenomenon.

Elastic demand and total revenue

For Gong Cha,
 the demand for bubble tea from Gong Cha is relatively elastic.
[“wa so expensive ah, I go another shop to buy la!”]

When the price of a good increases, the quantity demanded for it decreases.
Written explanation: [4 steps!]
 If the demand for the good is elastic,
 the percentage decrease in quantity demanded is larger than the percentage increase in price.
 The loss in total revenue is larger than the gain in total revenue.
 The total revenue decreases. must be comparing % changes
instead of absolute changes

Graphical representation:

When the price of a good decreases, the quantity demanded for it increases.
Written explanation: [4 steps!] Graphical representation:
 If the demand for the good is elastic,

 The percentage increase in quantity demanded

is larger than the percentage decrease in price.

 The gain in total revenue is larger than the

loss in total revenue.

 The total revenue increases.

Price Elasticity of Demand & Supply Page 8

Inelastic demand and total revenue
For HK Electric,
 the demand for electricity is relatively inelastic. [even if it is expensive, I still need to buy it!]

When the price of a good increases, the quantity demanded for it decreases.
Written explanation: [4 steps!]
 If the demand for (the good) is inelastic,
 the percentage decrease in quantity demanded is smaller than the percentage increase in price.
 The loss in total revenue is smaller than the gain in total revenue.
 The total revenue increases.

When the price of a good decreases, the quantity demanded for it increases.
Written explanation: Graphical representation:
 If the demand for (the good) is inelastic,

 The percentage increase in quantity demanded

is smaller than the percentage decrease in price.

 The gain in total revenue is smaller than the

loss in total revenue.

 The total revenue decreases.

Summary*****
if the demand is elastic if the demand is inelastic
when price increases % ↓ Qd > % ↑ P → TR decreases % ↓ Qd < % ↑ P → TR increases
when price decreases % ↑ Qd > % ↓ P → TR increases % ↑ Qd < % ↓ P → TR decreases
*if the demand is unitarily elastic, % △ Qd = % △ P → TR unchanged
When the direction of the change in P and Q is different, we consider the elasticity of demand to determine the change
in total revenue.

Price Elasticity of Demand & Supply Page 9

Practice Question
To thank customers for their support, a magazine publisher offers a 50% discount on its magazines during
the month of the anniversary of its founding. With the aid of a diagram, explain under what condition the total
revenue of the magazine publisher would increase.
Hint:
 The price of magazine decreases, the quantity demanded for magazines increases.
 If the total revenue of the magazine publisher increases,
- it means the % increase in Qd is (larger / smaller) than the % decrease in P,
 the demand for magazines is (elastic / inelastic).

If the demand for the magazines is elastic,

The percentage increase in quantity demanded is larger than the percentage decrease in price.

The gain in total revenue is larger than the loss in total revenue.

The total revenue increases.

2017 DSE Q15 (84%)

Refer to the following conversation between Mandy and Shirley.

Mandy: I like coffee very much! No matter how its price changes, I always buy the same
amount of coffee every week!
Shirley: I like coffee very much too! No matter how its price changes, I always spend the
same amount of money on coffee every week!

Based on their conversation, Mandy's demand for coffee is ____ and Shirley's demand for coffee is

A. perfectly inelastic ...... perfectly inelastic

B. perfectly inelastic ...... unitarily elastic
C. unitarily elastic ...... perfectly inelastic
D. unitarily elastic ...... unitarily elastic

Price Elasticity of Demand & Supply Page 10

2022 DSE Q12 (47%)
The following table shows the total expenditure of Mary and Peter on soft drinks.

Consumer’s total expenditure ($)

Unit price ($)
Mary Peter
1 20 60
2 40 60
3 60 60
4 80 60

Mary’s elasticity of demand for soft drinks is _______________ while Peter’s elasticity of demand for soft
drinks is __________________ (without regard to the negative sign).

A. between zero and one … equal to zero B. between zero and one … equal to one
C. equal to zero … equal to zero D. equal to zero … equal to one

Suppose the price of petrol has increased. With the aid of a diagram, explain under what condition the bus
companies’ total revenue from provision of bus services will decrease. (8 marks)
Hint / Steps:
1. Any curve shifted? WHY? (1)
2. After the shift in curve, how does the equilibrium price and the equilibrium quantity change? (1)
3. [the condition] if the demand for bus services is (elastic / inelastic), (1)
4. Compare the percentage changes in price and quantity demanded (1)
5. Compare the gain and loss in total revenue (which leads to a decrease in TR)
The price of petrol increases.

As the cost of production of bus services increases, the supply of bus services decreases.
The equilibrium price increases, and the equilibrium quantity decreases.

Under the condition that the demand for bus services is elastic,
The percentage increase in price would be smaller than the percentage decrease in quantity demanded,

The gain in total revenue will be smaller than the loss in total revenue.

The total revenue decreases.

Price Elasticity of Demand & Supply Page 11

10.6 Definition and Calculation of Price Elasticity of Supply
 Price elasticity of supply measures how responsive the quantity supplied of a good is to a change in
its price.
 In laymen terms, it means the responsiveness of producers to a change in price of a good.
i.e., can they increase production a lot when price increases?
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑑
Price elasticity of supply coefficient (Es) = 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒

 When price of a good increases, the quantity supplied increases. Es is therefore always positive.

Arc elasticity of supply

 Measurement of price elasticity of supply over a certain price range of supply curve
 We use average price & average quantity supplied as the denominators.

% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑑

𝐸𝑠 =
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒

𝑄𝑠1 − 𝑄𝑠0
𝑥100%
(𝑄𝑠0 + 𝑄𝑠1)/2
=
𝑃1 − 𝑃0
𝑥 100%
(𝑃0 + 𝑃1)/2

10.7 Types of Price Elasticity of Supply

1. Perfectly inelastic supply
 A change in price might not cause any change in the quantity
supplied.
 Quantity supplied is unresponsive to change in its price.

 Numerical expression: Es = 0

2. Inelastic supply
 The percentage change in quantity supplied of the good is
smaller than the percentage change in its price.
 i.e., producers are unresponsive to price
/ cannot respond quickly to price

 Numerical expression: Es < 1

quantity started with a larger base – its % change would be smaller

Price Elasticity of Demand & Supply Page 12

3. Unitarily elastic supply
 The percentage change in quantity supplied of a good is equal to
the percentage change in its price.

 Numerical expression: Es = 1

4. Elastic supply
 The percentage change in quantity supplied of the good is larger
than the percentage change in its price.
 i.e., producers are responsive to price
/ can respond quickly to price

 Numerical expression: Es > 1

price started with a larger base – its % change would be smaller

5. Perfectly elastic supply

 An extremely small change in price causes an infinite change in
quantity supplied.
 In other words, quantity supplied is extremely responsive to
any change in its price.

 Numerical expression: Es = ∞

10.8 Factors affecting the Price Elasticity of Supply

1. Flexibility of adjusting production levels
 If firms enjoy a higher flexibility in adjusting their production levels, the supply tends to be more
elastic.

The flexibility of a firm to adjust production levels can be affected by …

whether the firm has spare production capacity
 When the price of a good increases, firms with spare production capacity can use their spare capacity
to increase production - more elastic supply.
e.g., they have 10 machines in a company, and only 5 are in-use currently.
When price of the good increases, they can immediately increase production by using the remaining 5
machines. If all are in use, it would be more hard for the firm to further increase production.

in use idle

Price Elasticity of Demand & Supply Page 13

 whether critical factor inputs are available
 Some factor inputs (factors of production) are critical to a firm’s production.
 Availability of these factors may be affected by factors’ occupational mobility and geographical
mobility.
- If the factors of production are more mobile,
- when the price of the goods increases, the firms can easily increase the production by employing
the factors from other industries / places when the price increases - more elastic supply.

e.g., supply of medical services provided by hospitals are relatively inelastic because the availability of
doctors and nurses are limited.

whether the industry is capital or labour-intensive

 capital-intensive industries (e.g., aircraft manufacturing)
- tend to have a less elastic supply as it takes more time for firms to install new capital (machines)

 labour-intensive industries (e.g., garment factories)

- tend to have a more elastic supply as its requires shorter time for firms to increase workers*.
*we focus on labour that only requires general skills instead of specialised skills; otherwise, the supply may be
inelastic as mentioned by the previous argument

2. Time for adjusting production levels

 Firms usually cannot adjust production levels within a short period of time.
 But if longer time is given, they can usually find ways to adjust them, e.g., by employing more capital
or more labour.
 Therefore, the supply over a long period of time is more elastic than over short period of time.
[similar to that of elasticity of demand]

3. Ease of entry of new firms

 If the firms can easily enter an industry, more producers will enter the industry when the price of
those good increases (greater increase in Qs)
- the market supply tends to be more elastic.

 If the industry has a lot of entry barriers (such as huge capital requirement / license required),
 fewer producers can enter the industry when the price of those good increases.
- the market supply tends to be more inelastic.

e.g., the supply of taxi licences is fixed by the government - perfectly inelastic

Point to note
We do not discuss total revenue here because the change in total revenue is certain when there is a price
change along a supply curve.
(i.e., when price increases, the quantity supplied increases, the total revenue must increase.)

Price Elasticity of Demand & Supply Page 14

Change in total revenue when demand / supply changes
Price Quantity Change in total revenue (P x Q)
When supply increases ↓ ↑ depends on elasticity of demand
When supply decreases ↑ ↓ depends on elasticity of demand
When demand increases ↑ ↑ increases
When demand decreases ↓ ↓ decreases

Past Paper Questions

Factors affecting elasticity of demand and supply
2016 DSE Q15 (37%)
A decrease in the cost of producing Good X results in a 5% and 10% change in its price and quantity transacted
respectively. Which of the following best explains the above changes?
A. Good X is a durable good.
B. There are no close substitutes for Good X.
C. Firms producing Good X have excess capacity in production.
D. The factors of production for Good X are not easily available.

Conclusion on whether demand / supply is elastic or inelastic

2012 DSE pp Q9
Suppose there is political unrest in the countries exporting crude oil. As a result, there is a 30% increase in the
price of gasoline and a 15% change in the quantity transacted of gasoline. We can conclude that
A. the demand for gasoline is elastic.
B. the demand for gasoline is inelastic.
C. the supply of gasoline is elastic.
D. the supply of gasoline is inelastic.

2019 DSE Q11 (51%)

Study the following news abstract.
A Dengue fever (登革熱) scare has hit Hong Kong after 19 people in the past week were confirmed to have
contracted the virus locally. Dengue fever is transmitted to humans by Aedes albopictus (白紋伊蚊), a type
of mosquito commonly found in Hong Kong.

Suppose the price and the quantity of mosquito repellents sold in Hong Kong changed by 5% and 120%
respectively shortly after the release of the above news. This indicates that during that period and within the
price range, there was an _____ the mosquito repellents in Hong Kong.

A. elastic supply of
B. inelastic supply of
C. elastic demand for
D. inelastic demand for

MC skill -
 When one curve shifts, the price change would be along the other curve.
i.e., when demand increases, price increases and quantity increases along the supply curve.
 The percentage changes in price and quantity reflects the elasticity of the supply curve.
 The curve that shifted would not be the answer.
Price Elasticity of Demand & Supply Page 15
Past Paper Question Types – with explanation

2012 DSE pp Q9
Suppose there is political unrest in the countries exporting crude oil. As a result, there is a 30% increase in the
price of gasoline and a 15% change in the quantity transacted of gasoline. We can conclude that

A. the demand for gasoline is elastic.

B. the demand for gasoline is inelastic.
C. the supply of gasoline is elastic.
D. the supply of gasoline is inelastic.

Explanation
 Supply of gasoline decreases. price increases and quantity decreases.
It is along the demand curve – reflecting the elasticity of demand.

When supply shifts, the % changes would reflect the elasticity of demand.

 30% increase in price; 15% decrease in quantity transacted.

Laymen explanation: when the price increases by 30%, people only reduces their consumption of gasoline
by 15%. (probably because of gasoline is a necessity) – the demand for it is inelastic. (%Qd < %P)

2019 DSE Q11 (51%)

Study the following news abstract.
A Dengue fever (登革熱) scare has hit Hong Kong after 19 people in the past week were confirmed to have
contracted the virus locally. Dengue fever is transmitted to humans by Aedes albopictus (白紋伊蚊), a type
of mosquito commonly found in Hong Kong.

Suppose the price and the quantity of mosquito repellents sold in Hong Kong changed by 5% and 120%
respectively shortly after the release of the above news. This indicates that during that period and within the
price range, there was an _____ the mosquito repellents in Hong Kong.

A. elastic supply of
B. inelastic supply of
C. elastic demand for
D. inelastic demand for

Explanation
 Demand for the mosquito repellents increases because of Dengue fever scare.
 price increases and quantity increases.
It is along the supply curve – reflecting the elasticity of supply.

When demand shifts, the % changes would reflect the elasticity of supply.

 5% increase in price; 120% increase in quantity transacted.

Laymen explanation: when the price increases by 5%, producers can respond quickly to increase their
production massively (by 120%). The supply of mosquito repellents is elastic. (%Qs > %P)

Price Elasticity of Demand & Supply Page 16