Answer to Question #123570 in Microeconomics for siwe

Question

Assuming that a 20% increase in the price of tomatoes leads to a 4% reduction in the quantity of tomatoes demanded what is elesticity

Answer 1

Price elasticity of demand, or elasticity, is the degree to which the effective desire for something changes as its price changes. In general, people desire things less as those things become more expensive.

(PED) =(% Δdd) / ( %Δp)

20% change increase in price

4% change in demand

PED = ( 4%) / ( 20% )

PED = 0.2

Computed elasticities that are less than 1 indicate low responsiveness to price changes and are described as inelastic demand.