Economics For Today

10th Edition
Publisher: Cengage Learning
ISBN: 9781337613040



Economics For Today

10th Edition
Publisher: Cengage Learning
ISBN: 9781337613040
Chapter 5, Problem 2SQ
Textbook Problem

If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is

  1. a. elastic.
  2. b. inelastic.
  3. c. perfectly inelastic.
  4. d. unitary elastic.

To determine

Implication of a lower percentage change in demand than the change in price.

Explanation of Solution

The degree of responsiveness in the demand for the commodity due to a change in the price level of the commodity in the economy is known as the elasticity of demand. The coefficient of the elasticity determines the type of the demand. When the elasticity coefficient is zero, it indicates a perfectly inelastic demand which would remain same whatever changes happen to the price. When the demand is perfectly elastic, the coefficient of elasticity would be infinity. All other options lie between these two extremes.

Option (b):

The percentage change in the demand and price determines the elasticity of demand in the economy. When the percentage change in the demand and price is the same, it denotes a unitary elasticity. When the value is zero, it means that there is a perfect inelasticity and when the change in the demand is higher than the change in price, it is an elastic demand. The extreme case is when the small percentage change in price leading to a infinity change in the demand known as the infinity demand...

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Chapter 5 Solutions

Economics For Today
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