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Study Unit I: LINEAR FUNCTIONS

The straight line and applications

• The equation of a straight line

• Applications
❖ Demand
❖ Supply
❖ Cost
❖ Revenue
❖ Profit
• Elasticity of linear demand and supply
❖ Point elasticity of demand
❖ Arc elasticity of demand
❖ Point elasticity of supply
❖ Arc elasticity of supply

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1.0 Linear functions

A linear function is any function whose graph is a straight line. The straight-line graphs may
appear as horizontal, vertical, ascending or descending depending on their orientation on the
Cartesian plane* (a standard two-dimensional plane whose points are represented by a
coordinate system). The diagram below shows the different types of linear functions.

From the diagram above, we have a horizontal green line, vertical purple line, ascending blue line
and descending red line.

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The standard Cartesian plane has the horizontal 𝑥 − axis and a vertical 𝑦 − axis drawn
perpendicular to each other. These two axes intersect at a point known as the origin where both
𝑥 and 𝑦 are zero denoted by the point (0 ; 0). From the origin, 𝑥 values increase to the right
(positive) and decrease to the left (negative). In a similar manner, 𝑦 values increase upwards (+)
and decrease downwards (−). Each point on the Cartesian plane can be uniquely denoted by its
respective 𝑥 and 𝑦 values. Students should be able to accurately read out points on the plane.
The Cartesian plane is shown below with some of the points given. Find the coordinates of the
remaining points. (Graph 1)

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1.1 The equation of a straight line

As indicated earlier, linear functions (and their graphs) appear as straight lines when drawn on a
suitable set of axes. Horizontal and vertical functions only involve a single variable while
ascending and descending lines have two variables, the dependent and independent variables.
For illustrative purposes we will stick to the 𝑥 and 𝑦 variables, however, the bulk of the curriculum
will involve variables in 𝑝 and 𝑞 and other variables as shall be discovered soon. The table below
summarises the variables involved when dealing with the 4 different types of linear functions.
Note here that 𝑎, 𝑏, 𝑐 and 𝑚 are constants, that is, they take numerical values. Only 𝑥 and 𝑦
remain as variables in the different equations.

Type of line Number of Examples Graph

Standard equation variables
Horizontal 1 (𝒚) 𝒚=𝟐
𝒚=𝒂 𝒚 = −𝟓
𝒚 = 𝟎 (𝑻𝒉𝒆 𝒙 − 𝒂𝒙𝒊𝒔)
Vertical 1 (𝒙) 𝒙 = −𝟒
𝒙=𝒃 𝒙=𝟕
𝒙 = 𝟎 (𝑻𝒉𝒆 𝒚 − 𝒂𝒙𝒊𝒔)

Ascending 2 (𝒙, 𝒚) 𝒚 = 𝟐𝒙 − 𝟔
𝒚 = 𝒎𝒙 + 𝒄 𝟑𝒚 − 𝟒𝒙 = 𝟖
(𝒎 𝒊𝒔 𝒑𝒐𝒔𝒊𝒕𝒊𝒗𝒆) 𝒚−𝒙+𝟑=𝟎

Descending 2 (𝒙, 𝒚) 𝒚 = −𝒙 + 𝟏
𝒚 = 𝒎𝒙 + 𝒄 𝟐𝒚 + 𝟑𝒙 = 𝟓
(𝒎 𝒊𝒔 𝒏𝒆𝒈𝒂𝒕𝒊𝒗𝒆) 𝒚+𝒙+𝟐=𝟎

The equations for horizontal and vertical equations are easy to find. For ascending and
descending lines, there are steps that need to be followed but let us first define the variables and
constants involved.

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The standard form of an ascending or descending line is given by:

𝒚 = 𝒎𝒙 + 𝒄

We shall stick to the first one, where:

𝑦 = 𝑑𝑒𝑝𝑒𝑛𝑑𝑒𝑛𝑡 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒

𝑥 = 𝑖𝑛𝑑𝑒𝑝𝑒𝑛𝑑𝑒𝑛𝑡 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒

𝑚 = 𝑠𝑙𝑜𝑝𝑒 𝑜𝑟 𝑔𝑟𝑎𝑑𝑖𝑒𝑛𝑡: (+) 𝑖𝑓 𝑎𝑠𝑐𝑒𝑛𝑑𝑖𝑛𝑔 𝑎𝑛𝑑 (−) 𝑖𝑓 𝑑𝑒𝑠𝑐𝑒𝑛𝑑𝑖𝑛𝑔

𝑐 = 𝑦 𝑖𝑛𝑡𝑒𝑟𝑐𝑒𝑝𝑡 (𝑡ℎ𝑒 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑦 𝑤ℎ𝑒𝑛 𝑡ℎ𝑒 𝑙𝑖𝑛𝑒 𝑐𝑟𝑜𝑠𝑠𝑒𝑠 𝑜𝑟 𝑐𝑢𝑡𝑠 𝑡ℎ𝑒 𝑣𝑒𝑟𝑡𝑖𝑐𝑎𝑙 𝑎𝑥𝑖𝑠)

To find the equation of the straight line, the following information should be made available first:

✓ 𝑡𝑤𝑜 𝑝𝑜𝑖𝑛𝑡𝑠 𝑔𝑖𝑣𝑒𝑛 𝑜𝑟 𝑒𝑛𝑜𝑢𝑔ℎ 𝑖𝑛𝑓𝑜𝑟𝑚𝑎𝑡𝑖𝑜𝑛 𝑡𝑜 𝑑𝑒𝑑𝑢𝑐𝑒 𝑡ℎ𝑒 𝑡𝑤𝑜 𝑝𝑜𝑖𝑛𝑡𝑠

✓ 𝑜𝑛𝑒 𝑝𝑜𝑖𝑛𝑡 𝑎𝑛𝑑 𝑠𝑜𝑚𝑒 𝑖𝑛𝑓𝑜𝑟𝑚𝑎𝑡𝑖𝑜𝑛 𝑡ℎ𝑎𝑡 𝑔𝑖𝑣𝑒𝑠 𝑡ℎ𝑒 𝑠𝑙𝑜𝑝𝑒
✓ 𝑜𝑛𝑒 𝑝𝑜𝑖𝑛𝑡 𝑎𝑛𝑑 𝑠𝑜𝑚𝑒 𝑖𝑛𝑓𝑜𝑟𝑚𝑎𝑡𝑖𝑜𝑛 𝑡ℎ𝑎𝑡 𝑔𝑖𝑣𝑒𝑠 𝑡ℎ𝑒 𝑦 − 𝑖𝑛𝑡𝑒𝑟𝑐𝑒𝑝𝑡
With any one of the three conditions above given, the equation of the straight line may be found.

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Finding the equation of a straight line (𝒚 = 𝒎𝒙 + 𝒄) given two points (𝒙𝟏 ; 𝒚𝟏 ) 𝐚𝐧𝐝 (𝒙𝟐 ; 𝒚𝟐 )

➢ Calculate the slope, 𝒎 using the equation:

𝑦2 − 𝑦1
𝑆𝑙𝑜𝑝𝑒, 𝑚 =
𝑥2 − 𝑥1

➢ Write down the standard equation of a straight line using the calculated 𝒎 value.
➢ Using any one of the given points, substitute into the above equation and find the 𝑦 −
𝑖𝑛𝑡𝑒𝑟𝑐𝑒𝑝𝑡, 𝒄
➢ Rewrite the equation of the line with both values of 𝒎 and 𝒄 included.

Example 1: May/June 2015: Q7

Find the slope of the straight line passing through the points (5; 10) and (6 ; 8)

Hence, find the equation of the line.

𝒚𝟐 − 𝒚𝟏 𝟖 − 𝟏𝟎
𝑺𝒍𝒐𝒑𝒆, 𝒎 = = = −𝟐
𝒙𝟐 − 𝒙𝟏 6−5

➢ Write down the standard equation of a straight line using the calculated 𝒎 value.
𝑦 = −2𝑥 + 𝑐
(5; 10)
10 = −2(5) + 𝑐
10 = −10 + 𝑐
10 + 10 = 𝑐 = 20
𝒚 = −𝟐𝒙 + 𝟐𝟎
𝒚 + 𝟐𝒙 = 𝟐𝟎 𝒐𝒓 𝟐𝒙 + 𝒚 = 𝟐𝟎
𝟐𝒙 + 𝒚 − 𝟐𝟎 = 𝟎

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Example 2: Assignment 1, Question 1, Semester 2, 2019

Find the equation of the straight line passing through the points (4; 2) 𝑎𝑛𝑑 (2; 4).

𝒚𝟐 − 𝒚𝟏 𝟒 − 𝟐 𝟐
𝑺𝒍𝒐𝒑𝒆, 𝒎 = = = = −𝟏
𝒙𝟐 − 𝒙𝟏 2 − 4 −𝟐

𝒚 = 𝒎𝒙 + 𝒄

𝒚 = −𝟏𝒙 + 𝒄

Use (𝟒; 𝟐)

𝟐 = −𝟏(𝟒) + 𝒄

𝟐 = −𝟒 + 𝒄

𝟐+𝟒=𝒄=𝟔

𝒚 = −𝒙 + 𝟔 𝒐𝒓 𝒚 = 𝟔 − 𝒙 𝒐𝒓 𝒙 + 𝒚 = 𝟔 𝒐𝒓 𝒙 + 𝒚 − 𝟔 = 𝟎

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Example 3: Oct/Nov 2015: Q16 or Oct/Nov 2016: Q1

A line cuts the 𝑥-axis at 4 and goes through the point (2 ; 4). The equation of the line is

When a line cuts the 𝑥 −axis, 𝑦 = 0

The other point is (4 ; 0) given (2 ; 4)

𝑦2 − 𝑦1
𝑆𝑙𝑜𝑝𝑒, 𝑚 =
𝑥2 − 𝑥1

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Example 4: May/June 2015: Q9

A linear line cuts the 𝑦-axis at 10 and goes through the point (2 ; 4). The equation of the line is.

(0; 10) 𝑎𝑛𝑑 (2; 4)

𝑡ℎ𝑒 𝑦 − 𝑖𝑛𝑡𝑒𝑟𝑐𝑒𝑝𝑡, 𝑐 = 10

𝑦 = 𝑚𝑥 + 𝑐

𝑦 = 𝑚𝑥 + 10

𝑈𝑠𝑒 𝑡ℎ𝑒 𝑔𝑖𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 (2; 4)𝑡𝑜 𝑓𝑖𝑛𝑑 𝑚, 𝑡ℎ𝑒 𝑠𝑙𝑜𝑝𝑒

4 = 𝑚(2) + 10

4 = 2𝑚 + 10

4 − 10 = 2𝑚

−6 = 2𝑚

6 2𝑚
− =
2 2
−3 = 𝑚 𝑎𝑛𝑑 𝑐 = 10

𝑦 = 𝑚𝑥 + 𝑐

𝑦 = −3𝑥 + 10

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Example 5: May/June 2019: Q1

Suppose the cost of manufacturing 10 units of a product is R40 and the cost of manufacturing 20
units is R70. If the cost C is linearly related to output Q (units produced), the cost of producing 35
items is

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C is linearly related to output Q

𝑦 is linearly related to output 𝑥

(10; 40) 𝑎𝑛𝑑 (20; 70)

70 − 40
𝑆𝑙𝑜𝑝𝑒, 𝑚 = =3
20 − 10
𝑦 = 𝑚𝑥 + 𝑐

𝑦 = 3𝑥 + 𝑐

(10; 40)

40 = 3(10) + 𝑐

40 = 30 + 𝑐

40 − 30 = 𝑐 = 10

𝑐 = 10

𝑦 = 3𝑥 + 10

Find 𝑦 (𝐶) when 𝑥 (𝑄) = 35

𝑦 = 3(35) + 10 = 𝑅115,00

[1] R8,33

[2] R113,33

[3] R115,00

[4] R48,33

[5] none of the above

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Example 5: May/June 2019: Q6

Employees at a certain company prefer buying hamburgers at the cafeteria. There is usually a
demand for 100 hamburgers when the price is R25. It is known that for each R1 increase in price,
demand decreases by one hamburger. Determine the demand function with quantity (Q) as a
function of price (P)

[1] 𝑄 = 75 − 𝑃

[2] 𝑄 = 125 − 𝑃

[3] 𝑄 = −25 − 𝑃

[4] 𝑄 = 100(𝑃 − 25)

Example 6: May/June 2017: Q5

Workers at a building site have the option to eat lunch provided by an outside company. When
the price per lunch is R40, there is a demand for 80 lunches. It is known that for each R5 increase
in price, demand decreases by three lunches. Determine the demand function with quantity
demanded (𝑄) as a function of price (𝑃).

[1] 𝑄 = 104 − 0,6𝑃

[2] 𝑄 = 136,67 − 1,67𝑃

[3] 𝑄 = 56 + 0,6𝑃

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3
[4] 𝑄 = 40 − 5

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1.2 Parallel lines

Two or more lines are parallel if they have the same slope. The slope of any linear function can
be easily identified when the equation of the function has been expressed in standard form:

𝒚 = 𝒎𝒙 + 𝒄.

Graphically, parallel lines do not meet or intersect if drawn on the same set of axes. Below are
the graphs of 𝑦 = 2𝑥 + 1 𝑎𝑛𝑑 𝑦 = 2𝑥 − 2. The slope for each graph is 2 hence the lines are
parallel, running along like the tracks of a railway line.

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Example: From the list of linear functions below, identify which pairs of equations are parallel.

Hint: Express the equations in standard form: 𝒚 = 𝒎𝒙 + 𝒄

A: 𝒚 = 𝟑𝒙 − 𝟒 𝒎=𝟑
𝟐 𝟐
B: 𝒚 = −𝟑 𝒙 − 𝟔 𝒎 = −𝟑

C: 𝟔𝒙 + 𝒚 = 𝟒

𝒚 = −𝟔𝒙 + 𝟒 𝒎 = −𝟔
𝟑 𝟑
D: 𝒚 = −𝟐𝒙 − 𝟔 𝒎 = −𝟐

E: 𝟑𝒚 + 𝟐𝒙 − 𝟏 = 𝟎

𝟑𝒚 = −𝟐𝒙 + 𝟏
𝟑𝒚 𝟐 𝟏
= −𝟑𝒙 + 𝟑
𝒚

𝟐 𝟏 𝟐
𝒚 = −𝟑𝒙 + 𝟑 𝒎 = −𝟑

F: 𝒚 = −𝟔𝒙 + 𝟐 𝒎 = −𝟔
𝟑
G: 𝒚 = 𝟓 − 𝟐𝒙

𝟑 𝟑
𝒚 = −𝟐𝒙 + 𝟓 𝒎 = −𝟐

H: 𝒚 − 𝟑𝒙 − 𝟑 = 𝟎

𝒚 = 𝟑𝒙 + 𝟑 𝒎=𝟑

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Example 7: Oct/Nov 2019: Q1

Determine the equation of the line that cuts the 𝑦 − axis at 3 and that is parallel to the line:

𝑦 = 4𝑥 + 1, 𝑚=4

[1] 𝑦 = 3𝑥 + 4, 𝑠𝑙𝑜𝑝𝑒 𝑖𝑠 3

[2] 𝑦 = 3, 𝑠𝑙𝑜𝑝𝑒 𝑖𝑠 0

[3] 𝒚 = 𝟒𝒙 + 𝟑, 𝒔𝒍𝒐𝒑𝒆 𝒊𝒔 𝟒

[4] 𝑦 = 8𝑥 + 2, 𝑠𝑙𝑜𝑝𝑒 𝑖𝑠 8

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Example 8: Oct/Nov 2015: Q1

The lines 3𝑦 − 6𝑥 + 8 = −1 and 𝑦 = 𝑡𝑥 − 4; (𝑠𝑙𝑜𝑝𝑒 𝑖𝑠 𝑡) are parallel. What is the value of 𝑡?

The 2 lines have the same slope

Slope of 3𝑦 − 6𝑥 + 8 = −1 Express in standard form

3𝑦 − 6𝑥 + 8 = −1

3𝑦 = 6𝑥 − 8 − 1

3𝑦 = 6𝑥 − 9

3𝑦 6𝑥 9
= −
3 3 3
𝑦 = 2𝑥 − 3; 𝑚=2=𝑡

[1] −4

[2] −3,5

[3] −0,5194

[4] 2

[5] none of the above

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Applications of Linear Functions.

Demand and Supply

Demand
The demand of any given commodity is the price that consumers are willing to pay. The price (𝑃)
of any commodity will influence the number of items (𝑄) that can be purchased at that price.
For a linear demand function, there is a negative relationship between price and quantity. Less
and less people tend to purchase a commodity as the price gradually increases. It follows that
the slope of a demand function is negative, hence a demand function is a descending graph.

When it comes to demand functions, it is common practice to use the variables 𝑃 and 𝑄 but in
some cases, 𝑥 may also be used to represent either price or quantity. There are two basic types
of demand functions:

➢ 𝑃𝑟𝑖𝑐𝑒 (𝑃) 𝑎𝑠 𝑎 𝑓𝑢𝑛𝑐𝑡𝑖𝑜𝑛 𝑜𝑓 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 (𝑄)

➢ 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 (𝑄) 𝑎𝑠 𝑎 𝑓𝑢𝑛𝑐𝑡𝑖𝑜𝑛 𝑜𝑓 𝑝𝑟𝑖𝑐𝑒 (𝑃)
When price is a function of quantity, the demand function is of the form:

𝑃 = 𝑎 − 𝑏𝑄

where 𝑃 is the dependent variable (price dependent on quantity). 𝑎 and 𝑏 are constants, with 𝑏
as the negative slope and 𝑎 as the vertical intercept (the price when no items are demanded).
The values of 𝑎 and 𝑏 should be easily taken from this type of a demand function for future use.

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Examples

Find the values of 𝑎 and 𝑏 from the following demand functions:

𝑃 = 60 − 3𝑄

𝑃 = 𝑎 − 𝑏𝑄

𝑎 = 60 𝑏 = 3 (ℎ𝑜𝑤𝑒𝑣𝑒𝑟 𝑡ℎ𝑒 𝑠𝑙𝑜𝑝𝑒 𝑖𝑠 − 3)

𝑃 = 25 − 0.2𝑄

𝑃 = 𝑎 − 𝑏𝑄

𝑎 = 25 𝑏 = 0,2

1
𝑃 = −15 − 𝑄
3
1
𝑎 = −15 𝑏=
3

2
𝑃 = 18 − 𝑄
5
2
𝑎 = 18 𝑏=
5

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When quantity is a function of price, the demand function is of the form:

𝑄 = 𝑐 − 𝑏𝑃

where 𝑄 is the dependent variable (quantity dependent on price). 𝑐 and 𝑏 are constants, with 𝑏
as the negative slope and 𝑐 as the vertical intercept (the quantity when the price has not yet
been fixed). The values of 𝑐 and 𝑏 should be easily taken from this type of a demand function.
For future use, only the value of 𝑏 is needed from such a demand function.

The graphs below illustrate these two types of demand functions:

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Supply
Supply is a function of the amount of a specified commodity that is available on the market. From
a producer’s perspective, when the demand for a commodity increases, the price tend to increase
as well. So, the relationship between price and quantity is positive for a supply function and its
corresponding graph is ascending. Just like demand, the supply functions can be:

𝑃 = 𝑎 + 𝑏𝑄 or

𝑄 = 𝑐 + 𝑏𝑃.

The two possible graphs are shown below:

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Cost, Revenue and Profit

Cost
Total linear cost is given by the formula:
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 = 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡 + 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
𝑇𝐶 = 𝑉𝐶 + 𝐹𝐶 = 𝐹𝐶 + 𝑉𝐶
𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡 = 𝐶𝑜𝑠𝑡 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡(𝑃) × 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑 (𝑄)
𝑉𝐶 = 𝑃. 𝑄 (𝑃 𝑖𝑠 𝐶𝑜𝑠𝑡 𝑝𝑟𝑖𝑐𝑒)
Therefore:
𝑻𝑪 = 𝑷. 𝑸 + 𝑭𝑪
Revenue
After selling all the 𝑄 items produced, the revenue function is given by
𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 (𝑃) × 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑(𝑄)
𝑻𝑹 = 𝑷. 𝑸 (𝑃 𝑖𝑠 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒)
Profit
In general, the Profit function (𝜋) is given by:
𝑷𝒓𝒐𝒇𝒊𝒕 (𝝅) = 𝑻𝑹 − 𝑻𝑪
𝜋 = 𝑇𝑅 − (𝑉𝐶 + 𝐹𝐶)
𝜋 = 𝑇𝑅 − 𝑉𝐶 − 𝐹𝐶
It should be noted that the 𝑃 in 𝑇𝐶 does not have the same value as that in 𝑇𝑅. In any case
𝐶𝑜𝑠𝑡 𝑝𝑟𝑖𝑐𝑒 < 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒
When 𝑇𝑅 < 𝑇𝐶, a loss is made and when 𝑇𝑅 = 𝑇𝐶, the company breaks even and when 𝑇𝑅 >
𝑇𝐶, a profit is realised.

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Example:
Oct/Nov 2018: 1
Lighting Warehouse produces 𝑞 solar lamps at a fixed cost of R10 000 per week. Each lamp costs
R150 to produce and is sold for R350.
What are the equations for total revenue, total cost, and profit function?
𝑇𝑅 = 𝑝 × 𝑞
𝑇𝑅 = 350 × 𝑞
𝑻𝑹 = 𝟑𝟓𝟎𝒒
𝑇𝐶 = 𝑉𝐶 + 𝐹𝐶
𝑇𝐶 = 𝐶𝑜𝑠𝑡 𝑃𝑟𝑖𝑐𝑒 × 𝑞 + 𝐹𝐶
𝑇𝐶 = 150 × 𝑞 + 10 000
𝑻𝑪 = 𝟏𝟓𝟎𝒒 + 𝟏𝟎 𝟎𝟎𝟎
𝑃𝑟𝑜𝑓𝑖𝑡 = 𝑇𝑅 − 𝑇𝐶
𝑃𝑟𝑜𝑓𝑖𝑡 = 350𝑞 − (150𝑞 + 10 000)
𝑃𝑟𝑜𝑓𝑖𝑡 = 350𝑞 − 150𝑞 − 10 000
𝑷𝒓𝒐𝒇𝒊𝒕 = 𝟐𝟎𝟎𝒒 − 𝟏𝟎 𝟎𝟎𝟎

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May 2020

A company produces 𝑞 solar lamps at a fixed cost of R5 000 per week, and a variable cost of R150
per lamp. Each lamp is sold for R300.

What are the equations for total revenue, total cost, and profit function?

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Example: Assignment Question

A tuck shop at the station has fixed costs of R900 per week. They sell pies at a fixed price of
R23,00 each, while the production cost per pie is R15,00. We assume all pies that are produced
will be sold. What is the profit if 200 pies are sold?

𝑃𝑟𝑜𝑓𝑖𝑡 = 𝑇𝑅 − 𝑇𝐶

𝑇𝑅 = 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 × 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦

𝑇𝑅 = 23 × 200 = 4 600

𝑇𝐶 = 𝐹𝐶 + 𝑉𝐶

𝑇𝐶 = 900 + 𝑐𝑜𝑠𝑡 𝑝𝑟𝑖𝑐𝑒 × 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦

𝑇𝐶 = 900 + 15 × 200

𝑇𝐶 = 3 900

𝑃𝑟𝑜𝑓𝑖𝑡 = 𝑇𝑅 − 𝑇𝐶 = 4 600 − 3 900 = 𝑅700

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Elasticity
Elasticity of linear demand and supply
Elasticity can be defined as the responsiveness of quantity demanded to a change in price. If a
small change in price results in a considerably large change in quantity, then demand is said to
be elastic.
The table below shows the price of bread at a Spaza shop servicing a community in a small town.

Year Price of bread Demand Conclusion

2015 𝑅10,00 100

2017 𝑅14,00 90 Inelastic

2023 𝑅20,00 40 Elastic

1.2.1 Point price elasticity of demand for a linear demand function

For a linear demand function given by:
𝑷𝒅 𝒐𝒓 𝑷 = 𝒂 − 𝒃𝑸
Point price elasticity of demand is given by:
𝟏 𝑷
𝜺𝒅 = − ×
𝒃 𝑸
Or the more simplified formula
𝑷
𝜺𝒅 =
𝑷−𝒂
For a linear demand function given by:
𝑸𝒅 𝒐𝒓 𝑸 = 𝒂 − 𝒃𝑷
Point price elasticity of demand is given by:
𝑷
𝜺𝒅 = −𝒃 ×
𝑸

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Demand is elastic if 𝜺𝒅 < −𝟏 or |𝜺𝒅 | > 𝟏 and

Demand is inelastic if 𝜺𝒅 > −𝟏 or |𝜺𝒅 | < 𝟏
𝜀𝑑 = 𝑎𝑐𝑡𝑢𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 𝑜𝑓 𝑑𝑒𝑚𝑎𝑛𝑑 and

|𝜀𝑑 |
= 𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 𝑜𝑓 𝑑𝑒𝑚𝑎𝑛𝑑 (𝑊𝐻𝐸𝑁 𝑌𝑂𝑈 𝑅𝐸𝑀𝑂𝑉𝐸 𝑇𝐻𝐸 𝑁𝐸𝐺𝐴𝑇𝐼𝑉𝐸 𝑆𝐼𝐺𝑁)
The absolute value is found by removing the negative sign on the value of elasticity of demand.

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Example: Oct/Nov 2018: Q9

If the demand function is equal to 𝑃 = 60 − 2,5𝑄 with 𝑃 and 𝑄 the price and quantity
respectively, determine the expression for the price elasticity of demand if 𝑃 = 10
𝑃 = 60 − 2,5𝑄
𝑃 = 10 𝑎 = 60 𝑏 = 2,5 𝑄?
10 = 60 − 2,5𝑄
2,5𝑄 = 60 − 10
2.5𝑄 50
=
2.5 2.5
𝑄 = 20

1 𝑃 1 10
𝜀𝑑 = − × = − ×
𝑏 𝑄 2.5 20
𝜀𝑑 = −0,2
𝐴𝑏𝑠𝑜𝑙𝑢𝑡𝑒 𝑣𝑎𝑙𝑢𝑒|𝜀𝑑 | = 0,2 < 1 𝑑𝑒𝑚𝑎𝑛𝑑 𝑖𝑠 𝑖𝑛𝑒𝑙𝑎𝑠𝑡𝑖𝑐

Is demand elastic or inelastic?

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Example: May/Jun 2018 Q8

If the demand function is 𝑃 = 𝟖𝟎 − 0.5𝑄 where 𝑃 and 𝑄 are the price and quantity respectively,
determine an expression for price elasticity of demand in terms of 𝑃 only.
𝑎 = 80 𝑃=𝑃
𝑷 𝑷
𝝐𝒅 = =
𝑷 − 𝒂 𝑷 − 𝟖𝟎

Example: May/Jun 2017: Q3

Consider the demand function 𝑃 = 100 − 5𝑄 with 𝑃 being price and 𝑄 quantity. Find the price
elasticity of demand when 𝑄 = 8. Is demand elastic or inelastic? Justify your answer.
𝑎 = 100 𝑄=8 𝑃?

𝑃 = 100 − 5(8) = 60

𝑷 𝟔𝟎
𝝐𝒅 = = = −𝟏, 𝟓 𝒅𝒆𝒎𝒂𝒏𝒅 𝒊𝒔 𝒆𝒍𝒂𝒔𝒕𝒊𝒄
𝑷 − 𝒂 𝟔𝟎 − 𝟏𝟎𝟎

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Example: Oct/Nov 2017 Q18

If the demand function is 𝑃 = 50 − 2.5𝑄 where 𝑃 and 𝑄 are the price and quantity respectively,
determine the point price elasticity of demand if 𝑃 = 10. Is demand elastic or inelastic at this
price?
𝑎 = 50 𝑃 = 10
𝑃 10 1
= = −0,25 𝑜𝑟 −
𝑃 − 𝑎 10 − 50 4

Oct 2018: Q9

If the demand function is equal to

𝑃 = 60 − 2,5𝑄

with 𝑃 and 𝑄 the price and quantity respectively, determine the expression for price elasticity of
demand if 𝑃 = 10

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Assignment 1, Sem 2, 2022

The demand function of a certain kind of bed is given by:

𝑞 = 5 300 − 3𝑝

Determine the point price elasticity of demand (𝜖) when 𝑝 = 1 600.

𝑞 𝑖𝑠 𝑜𝑛 𝑡ℎ𝑒 𝑙𝑒𝑓𝑡 ℎ𝑎𝑛𝑑 𝑠𝑖𝑑𝑒

𝑝 = 1 600 𝑞 = 5 300 − 3(1 600) = 500 𝑏=3

𝑝
𝜀𝑑 = −𝑏 ×
𝑞

1 600
𝜀𝑑 = −3 ×
500
𝜀𝑑 = −9,6 𝑑𝑒𝑚𝑎𝑛𝑑 𝑒𝑙𝑎𝑠𝑡𝑖𝑐.

May 2019: 18

If the demand function is equal to

𝑃 = 215 − 5𝑄

with 𝑃 and 𝑄 the price and quantity respectively, determine the point price elasticity of
demand if 𝑃 = 15. Is demand elastic or inelastic at this price?

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Oct 2019

If the demand function is 𝑃 = 80 − 0,5𝑄, where P and Q are the price and quantity respectively,
determine the expression for price elasticity of demand in terms of P only.

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Arc elasticity of demand

Arc elasticity of demand measures the elasticity over an interval when price changes from
𝑃1 to 𝑃2 . Likewise, it is also a measure of how quantity demanded will respond during the interval
when price changes between two values. For a demand function given by
If
𝑷𝒅 = 𝒂 − 𝒃𝑸
Then
∆𝑸 𝑷𝟏 + 𝑷𝟐 𝟏 𝑷𝟏 + 𝑷𝟐
𝜺𝒅 = × =− ×
∆𝑷 𝑸𝟏 + 𝑸𝟐 𝒃 𝑸𝟏 + 𝑸𝟐
If
𝑸𝒅 = 𝒂 − 𝒃𝑷
Then
∆𝑸 𝑷𝟏 + 𝑷𝟐 𝑷𝟏 + 𝑷𝟐
𝜺𝒅 = × = −𝒃 ×
∆𝑷 𝑸𝟏 + 𝑸𝟐 𝑸𝟏 + 𝑸𝟐

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Example: Assignment 1, Semester 2, 2019: Q4

Given the demand function 𝑷 = 𝟔𝟎 − 𝟎. 𝟐𝑸. What is the arc price elasticity of demand when the
price decreases from 𝑅50 to 𝑅40? Is it elastic or inelastic?
𝑏 = 0.2; 𝑃1 = 50; 𝑃2 = 40; 𝑄1 =? ; 𝑄2 =?

𝑃 = 60 − 0,2𝑄 𝑃 = 60 − 0,2𝑄
𝑃 = 50 𝑃 = 40
50 = 60 − 0,2𝑄 40 = 60 − 0,2𝑄
0,2𝑄 = 60 − 50 0,2𝑄 = 60 − 40
0,2𝑄 = 10 0,2𝑄 = 20
0,2𝑄 10
= 0,2
0,2

𝑄1 = 50 𝑄2 = 100

𝑏 = 0.2; 𝑃1 = 50; 𝑃2 = 40; 𝑄1 = 50; 𝑄2 = 100

𝟏 𝑷𝟏 + 𝑷𝟐 𝟏 𝟓𝟎 + 𝟒𝟎
𝜺𝒅 = − × =− × = −𝟑, 𝒆𝒍𝒂𝒔𝒕𝒊𝒄
𝒃 𝑸𝟏 + 𝑸𝟐 𝟎, 𝟐 𝟓𝟎 + 𝟏𝟎𝟎

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If the demand function of a commodity is

𝑃 = 70 − 0,5𝑄
where 𝑃 and 𝑄 the price and quantity respectively, determine the arc price elasticity of demand
when the price decreases from 𝑅7 to R5. Indicate whether demand is elastic or not.

𝑏 = 0.5; 𝑃1 = 7; 𝑃2 = 5; 𝑄1 =; 𝑄2 =
𝑃 = 70 − 0,5𝑄
7 = 70 − 0,5𝑄 5 = 70 − 0,5𝑄
0,5𝑄 = 70 − 7 0,5𝑄 = 70 − 5
0,5𝑄 = 63 0,5𝑄 = 65
0,5𝑄 63 0,5𝑄 65
= 0,5 = 0,5
0,5 0,5

𝑄1 = 126 𝑄2 = 130

𝑏 = 0.5; 𝑃1 = 7; 𝑃2 = 5; 𝑄1 = 126 𝑄2 = 130

𝟏 𝑷𝟏 + 𝑷𝟐 𝟏 𝟕+𝟓 𝟑
𝑬𝒅 = − × =− × =− 𝒐𝒓 − 𝟎, 𝟎𝟗, 𝒊𝒏𝒆𝒍𝒂𝒔𝒕𝒊𝒄
𝒃 𝑸𝟏 + 𝑸𝟐 𝟎, 𝟓 𝟏𝟐𝟔 + 𝟏𝟑𝟎 𝟑𝟐

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Arc elasticity of supply: Refer to Study Unit I Notes

Example: Ass 2, Sem 2, 2022

Question 3

The supply function for a certain product is given by:

𝑝 = 110 + 0,07𝑞

𝑏 = 0,07 𝑝1 = 160 𝑝2 = 180 𝑞1 ? 𝑞2 ?

160 = 110 + 0,07𝑞 180 = 110 + 0,07𝑞

160 − 110 = 0,07𝑞 180 − 110 = 0,07𝑞

50 = 0,07𝑞 70 = 0,07𝑞
50
= 𝑞1 = 714,28 𝑞2 = 1 000
0,07

𝑏 = 0,07 𝑝1 = 160 𝑝2 = 180 𝑞1 = 714,28 𝑞2 = 1 000

∆𝑸 𝑷𝟏 + 𝑷𝟐 𝟏 𝑷𝟏 + 𝑷𝟐 𝟏 𝟏𝟔𝟎 + 𝟏𝟖𝟎
𝜺𝒔 = × = × = × = 𝟐, 𝟖𝟑, 𝒔𝒖𝒑𝒑𝒍𝒚 𝒊𝒔 𝒆𝒍𝒂𝒔𝒕𝒊𝒄
∆𝑷 𝑸𝟏 + 𝑸𝟐 𝒃 𝑸𝟏 + 𝑸𝟐 𝟎, 𝟎𝟕 𝟕𝟏𝟒, 𝟐𝟖 + 𝟏 𝟎𝟎𝟎

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