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ACCA · Question 21 · Decision-making techniques
Section B - Case 2: CyberShield
CyberShield is a tech startup developing a new B2B SaaS (Software as a Service) platform for cybersecurity.
Market research shows that at a monthly subscription price of $100, demand is 5,000 users. If the price is increased to $110, demand falls to 4,000 users.
Calculate the Price Elasticity of Demand (PED) using the simple formula: (% change in quantity demanded) / (% change in price). (Enter the absolute value to one decimal place)
Section B - Case 2: CyberShield
CyberShield is a tech startup developing a new B2B SaaS (Software as a Service) platform for cybersecurity.
Market research shows that at a monthly subscription price of $100, demand is 5,000 users. If the price is increased to $110, demand falls to 4,000 users.
Calculate the Price Elasticity of Demand (PED) using the simple formula: (% change in quantity demanded) / (% change in price). (Enter the absolute value to one decimal place)
How to approach this question
1. Calculate % change in quantity: (New Q - Old Q) / Old Q. 2. Calculate % change in price: (New P - Old P) / Old P. 3. Divide % change in Q by % change in P. 4. Take the absolute value.
Full Answer
% Change in Quantity = (4,000 - 5,000) / 5,000 = -1,000 / 5,000 = -20%
% Change in Price = ($110 - $100) / $100 = $10 / $100 = +10%
PED = -20% / +10% = -2.0.
The absolute value is 2.0. Since PED > 1, demand is elastic.
Common mistakes
Dividing % change in price by % change in quantity (inverting the formula).
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