Question

Suppose there is a 5 percent increase in the price of good X and a resulting 10 percent decrease in the quantity of X demanded. Price elasticity of demand for X is______________.

Answer 1

Answer:

Price elasticity of demand for X=-2

Explanation:

The price elasticity of demand is a measure of the sensitivity in quantity of good demanded in relation to a change in price. It is often used to determine whether a good is elastic or inelastic. An elastic good is a good whose demand changes spontaneously with a change in price while an inelastic good is a good whose change in price doesn't affect the quantity demanded. Most inelastic goods are needs while most elastic goods are luxuries. A need is an item that most people cannot do without even if the price changes while a luxury is a good that most people can do without especially if the price of that good increases.

The price elasticity of demand can be determined using the expression below;

Price elasticity of demand=%change in quantity demanded/%change in price

where;

%change in quantity demanded={(Final quantity-initial quantity)initial quantity}×100=-10%

%change in price={(Final price-initial price)/initial price}×100=5%

replacing;

Price elasticity of demand=(-10%/5%)=-2

Price elasticity of demand=-2