Determine the
Determine whether the demand is elastic or inelastic.
Explanation of Solution
The price elasticity of demand can be calculated using the following formula:
Since the change in price is 10% and the change in quantity supplied is 20%, the price elasticity of demand can be calculated using Equation 1 as follows:
Thus, the price elasticity of demand is 2%.
The percentage change in quantity demand is higher than the percentage change in price, that is, the price elasticity is greater than one and then by definition, demand is elastic.
Price elasticity of demand: Change in the quantity demanded of a product due to a change in its price is known as the price elasticity of demand.
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