Question

The size of the change in the quantity demanded of a good or service due to change in its price is measured by the elasticity of demand. When the percentage change in the quantity demanded for a good or service is less than the percentage change in price, the demand for that good or service is ________ and the price elasticity coefficient is ________.

Answer 1

Answer:

inelastic / positive

Explanation:

Elasticity is a measure of the sensitivity of demand to price changes. We say that a demand is elastic when a slight variation in price is sufficient to impact the demand for a good or service. On the contrary, we say that demand is inelastic when price changes do not significantly change demand for the good.  . To calculate the price elasticity of demand, a formula is used that divides the observed change in quantity (Q) by the change in price (P). Elasticity = ▲ Q / ▲ P.

When the change in quantity is smaller proportionally than the change in price, as described in the question, we say that demand is inelastic - little sensitive to changes in price. Conversely, if the change in demand is greater in proportion to the change in price, demand is considered elastic.

The coefficient of elasticity will depend on the size of the change in price and quantity. When the change in quantity (▲ Q) is less than the change in price (▲ Q), we have a positive coefficient.

Recalling that the rate of change is the decrease between the values ​​of two periods divided by the value of period 1.

For example, let Q1 and P1 be the demand quantity and the price in period 1 and Q2e P2 the demand quantity and the price in period 2:

P1 = 11

P2 = 16

Q1 = 10

Q2 = 12

▲ Q = (Q2-Q1) / Q1 = (10-12) / 10 = -2/5 = -0.2

▲ P = (P2-P1) / P1 = (16-11) / 16 = -5/16 = -0.31

Since the calculation of elasticity is ▲ Q / ▲ P = -0.2 / -0.31 = +0.64

By the elementary operation of mathematics, two negative numbers being divided result in a positive result.