ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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3%
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12%
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£12
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24%
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Detailed explanation-1: -The price elasticity of demand in this situation would be 0.5 or 0.5%. This means that for every 1% increase in price, there is a 0.5% decrease in demand. Since the change in demand is smaller than the change in price, we can conclude that demand is relatively inelastic.
Detailed explanation-2: -If the elasticity of supply is 0.5, then a 10% decrease in price will result in a 5% increase in quantity supplied.
Detailed explanation-3: -Demand for a good is said to be elastic when the elasticity is greater than one. A good with an elasticity of −2 has elastic demand because quantity falls twice as much as the price increase; an elasticity of −0.5 has inelastic demand because the quantity response is half the price increase.
Detailed explanation-4: -Price Elasticity of Demand = Percentage change in quantity / Percentage change in price. Price Elasticity of Demand =-15% ÷ 60% Price Elasticity of Demand =-1/4 or-0.25.