Answer to Question #151866 in Microeconomics for Mohamed

Question

Yesterday,the price of envelopes was 3$ a box, and julie is now willing to buy 8 boxes. Is julie's demand for envelopes elastic or inelastic ? What is julie's elasticity of demand ?

Answer 1

we can compare prices and quantity for yesterday and today.

Assume yesterday, price at $\$3,$ quantity demanded = 10 boxes

Again, assume today price increased to $\$3.75,$ quantity demanded =8 boxes

To find Julie's elasticity of demand, we need to divide the percent change in quantity by the percent change in price.

$\%$ change in quantity $=(8-10)/10\times100\%=-20\%$

$\%$ change in price $=(3.75-3)/3\times 100 \%=25\%$

$Elasticity =|-20\%/25\%|=|-0.8|= 0.8$

Her elasticity of demand is the absolute value of -0.8, or 0.8. Julie's elasticity of demand is inelastic, since it is less than 1.