ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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5
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.5
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2
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.2
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Detailed explanation-1: -The price elasticity is unitary elastic equal to 1, which means the percentage change in demand will be the same as a percentage change in price. Hence, a 10% decrease in demand will occur with a 10% increase in price.
Detailed explanation-2: -Answer and Explanation: The correct answer choice is B. Demand is said to be price elastic when the value of price elasticity is greater than one. Here, the given percentage change in quantity demanded is 15, while the given percentage change in price is 10 implying that the price elasticity of demand is 1.5.
Detailed explanation-3: -The average values for quantity and price are used so that the elasticity will be the same whether calculated going from lower price to higher price or from higher price to lower price. For example, going from $8 to $10 is a 25% increase in price, but going from $10 to $8 is only a 20% decrease in price.
Detailed explanation-4: -Using the midpoint approach, the price elasticity of demand is about 2.33 between $12 and $16. To compute the percent change in quantity, (6-12) / [(6 +12)/2] =-0.67.