Answer to Question #244868 in Microeconomics for Biba

Question

3. “The price drops by 1 percent, causing the quantity demanded to rise by 2 percent. Demand is therefore elastic, with E D 1.” If you change 2 to

Answer 1

“The price drops by 1 percent, causing the quantity demanded to rise by 2 percent. Demand is therefore elastic, with E D 1.” If you change 2 to ½ in the fi rst sentence, what two other changes will be required in the quotation?

If you change 2 to ½ in the first sentence, the two other changes will be required in the quotation are

PED = %age change in Quantity Demanded / %age change in Price

PED = 0.5 % / 1 %

PED = 0.5

The price drops by 1 percent , causing the quantity demanded to rise by 0.5 percent . Demand is therefore inelastic , with PED = 0.5