Question

A decrease in the price of rice from 50 cents to 40 cents a pound increases consumption from 16 to 20 tons a week in Gainesville and from 160 to 200 tons in the larger city of Miami. The elasticity of demand for rice is:

Answer 1

Answer:

c. equal in Gainesville and Miami regardless of the population difference

Explanation:

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Elasticity of demand measures the responsiveness of quantity demanded to changes in price.

Elasticity of demand = percentage change in quantity demanded / percentage change in price

Percentage change in price: (50 - 40) / 40 = 0.25 × 100 = 25%

Percentage change in quantity demanded in Miami = (200 - 160) / 160 = 0.25 × 100 = 25%

Percentage change in quantity demanded in Gainesville =(20 - 16) / 16 = 0.25 × 100 = 25

Elasticity of demand in Miami = 25% / 25% = 1

Elasticity of demand in Gainesville= 25% / 25% = 1

Elasticity of demand in both places are equal to one.

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