Suppose that when the price of cigarettes decreases by 20 percent, the quantity demanded increases by 10 percent. The price elasticity of demand for cigarettes is __________, making cigarettes an ____________ product (in this example).
A)0.6; elastic
B)1.7; inelastic
C)0.5; inelastic
D)1.7; elastic
E)2.0; elastic

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is 10% / 20% = 0.5. A value less than 1 indicates an inelastic demand, meaning the quantity demanded is relatively unresponsive to price changes.

Suppose That When the Price of Cigarettes Decreases by 20