Asked by Brittany Whitworth on Jul 16, 2024
Verified
The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%.The price elasticity of demand is equal to _____,and demand is described as _____.
A) 0.2;inelastic
B) 5;inelastic
C) 0.2;elastic
D) 5;elastic
Price Elasticity
A measure of how much the quantity demanded of a good responds to a change in the price of that good, with elasticity greater than one indicating a responsive market.
Inelastic
Describing a situation where a change in the price of a good or service has a relatively small effect on the quantity demanded or supplied.
- Get acquainted with the notion and the calculus behind price elasticity of demand.
- Differentiate between elastic, inelastic, and unit-elastic demand.
Verified Answer
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Final Answer :
A
Explanation :
The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price, which is -1%/5% = -0.2. The negative sign is often ignored when discussing elasticity, so we say the elasticity is 0.2. Because the absolute value of the elasticity is less than 1, demand is described as inelastic.
Learning Objectives
- Get acquainted with the notion and the calculus behind price elasticity of demand.
- Differentiate between elastic, inelastic, and unit-elastic demand.