Question

Two drivers – Itchy and Scratchy – each drive up to a petrol station. Before looking at the

price and starting to pump petrol, Itchy says: ‘I will buy 20 litres of petrol’. Scratchy says: ‘I

will buy $30 of petrol’. What is each driver’s price elasticity of demand?

Answer 1

Itchy has inelastic demand, because he buys 20 litres (at any price). His price elasticity of demand equals to 0.

Scratchy has elastic demand, because he buys 30$, so his quantity bought depends on price. His price elasticity is 1