Answer:
B) Demand is price elastic
Explanation:
Elasticity of demand is the degree of responsiveness of demand to a change in price. It measures how much is effected on quantity demaned as a result of a unit change in price.
It is calculated as % change in quantity demanded by % change in price.
PED = % change in Quantity demanded/ % change in price
IF PED is greater than 1, demand is price elasitic
If IF PED is less than 1, demand is price inelasitic
If IF PED is equal to one, it is unitary
If the % change in price produces a more than proportional change in demand , PED is elastic.
In this question , a 10% increase in price as a result of tax produces 12% fall in demand, so PED = 12%/10%= 1.2.
PED is greater 1, Therefore, demand is price elastic
