Answer to Question #120126 in Microeconomics for Benjamin Aboagye

Question

1. Given that price of an orange is GHC 1 and the calculated value of price elasticity of demand for an orange is -2.08.



a. Clearly state and explain the type of elasticity and the meaning of the value of price elasticity (-2.8). Illustrate with appropriate diagram.

Answer 1

Since the absolute value of the indicator of price elasticity of demand is more than 1, $|-2.08|>1$ , then we are dealing with relatively elastic demand. In other words, a change in price in this case will lead to a larger quantitative change in the magnitude of demand.