Answer:
Explanation:
The formula is:
% change in Quantity Demanded divided by % change in Price
increase in price of 10 percent, quantity demanded decreases by 20 percent.
-20% divided by 10% = -2
Under price elasticity of demand the negative sign is ignored therefore the product is Elastic
Elasticity is the degree of responsiveness of a change in quantity demanded to a change in price.
Answer:
Demand is elastic, PED = 2.
Explanation:
Price elasticity of demand is simply the degree of responsiveness of quantity demanded to a change in demand, and it is calculated by dividing the % change in Quantity demanded by the % change in Price, i.e. % Change in Qty Demanded / % Change in Price.
To determine if the demand is elastic or inelastic, let’s calculate the price elasticity of demand (PED), given that % Change in Price = 10%, % Change in QD = 20%.
PED = % Change in QD / % Change in Price
PED = 20%/10% = 2
Demand is elastic if PED is >1, therefore since the calculated PED is 2, we can conclude that the demand is elastic.
