Answer to Question #167277 in Microeconomics for George Sorice

Question

If the quantity demanded of tea increases by 2% when the price of tea decreases by 10%, the price elasticity of demand for tea is:

Answer 1

By the definition of the price elasticity of demand, we have:

$$E_d=\dfrac{\%\Delta Q}{\%\Delta P}=\dfrac{2\%}{-10\%}=-0.2.$$

The price elasticity of demand for tea is 0.2 which means that the demand is inelastic.