Answered: inelastic

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter20: Elasticity: Demand And Supply

Section: Chapter Questions

Problem 13E: Using the following equation for the demand for a good or service, calculate the price elasticity of...

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Question

If the price of milk increases by 20% and the quantity of demand for milk decreases by 4%,

answer: Find the price elasticity of demand. Is the demand elastic, inelastic, or unit? Explain your answer.

Will this product have an easy or hard to find substitute? Why?

Expert Solution

Step 1

‘Price elasticity’ of a good is the response in the demand of the good as the price of the good rises or falls. Almost for any good the demand falls as its price rises, but this fall in quantity demanded may vary from one good to the other. The goods which have more substitutes are more price elastic while on the other hand the goods which are harder to replace with substitutes are less price elastic.

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