Two economists from Ohio University estimated that the demand curve for kerosene in Indonesia was such that a 10 percent increase in the price reduced the quantity demanded by 2.2 percent and that a 10 percent increase in the price of electricity increased the demand for kerosene by 1.6 percent.This indicates that (i) the demand for kerosene is price inelastic and (ii) kerosene and electricity are substitutes.Which of these two statements is correct?
A)i and ii
B)i not ii
C)ii not i
D)neither i nor ii

Question

Quizplus · Accepted Answer

The demand for kerosene is price inelastic because a 10 percent increase in price leads to only a 2.2 percent decrease in quantity demanded, indicating that the percentage change in quantity demanded is less than the percentage change in price. Kerosene and electricity are substitutes because an increase in the price of electricity leads to an increase in the demand for kerosene.

Two Economists from Ohio University Estimated That the Demand Curve