Microeconomics
Microeconomics
10th Edition
ISBN: 9781259655500
Author: David C Colander
Publisher: McGraw-Hill Education
Textbook Question
Book Icon
Chapter 6, Problem 1QE

Determine the price elasticity of demand if, in response to an increase in price of 10 percent, quantity demanded decreases by 20 percent. Is demand elastic or inelastic? (LO6-1)

Expert Solution & Answer
Check Mark
To determine

Determine whether the demand is elastic or inelastic.

Explanation of Solution

The price elasticity of demand can be calculated using the following formula:

ED=Percentage change in quntity demandedPercentage change in price        (1)

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:

ES=20%10%=2%

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.

Economics Concept Introduction

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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Micro Economics For Today
Economics
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Survey Of Economics
Economics
ISBN:9781337111522
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Microeconomics
Economics
ISBN:9781337617406
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Text book image
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning