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19 December, 17:29

Determine the price elasticity of demand if, in response to an increase in price of 10 percent, quantity demanded decreases by 20 percent. Instructions: Enter your response rounded to one decimal place. Price elasticity of demand: Is demand elastic or inelastic? Demand is

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  1. 19 December, 19:24
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    Demand is elastic, PED = 2.

    Explanation:

    Price elasticity of demand is simply the degree of responsiveness of quantity demanded to a change in demand, and it is calculated by dividing the % change in Quantity demanded by the % change in Price, i. e. % Change in Qty Demanded / % Change in Price.

    To determine if the demand is elastic or inelastic, let's calculate the price elasticity of demand (PED), given that % Change in Price = 10%, % Change in QD = 20%.

    PED = % Change in QD / % Change in Price

    PED = 20%/10% = 2

    Demand is elastic if PED is >1, therefore since the calculated PED is 2, we can conclude that the demand is elastic.
  2. 19 December, 20:15
    0
    The formula is:

    % change in Quantity Demanded divided by % change in Price

    increase in price of 10 percent, quantity demanded decreases by 20 percent.

    -20% divided by 10% = - 2

    Under price elasticity of demand the negative sign is ignored therefore the product is Elastic

    Elasticity is the degree of responsiveness of a change in quantity demanded to a change in price.
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