Cary increases the price of her cakes from $8 to $10 per cake, but her cash receipts decrease by 2 percent. The price elasticity of demand (in the $8 to $10 range) is
A) elastic.
B) inelastic.
C) 0.02.
D) 0.25.

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. In this case, the price increased by 25% (from $8 to $10) and the quantity demanded decreased by 2%. Therefore, the price elasticity of demand is -2% / 25% = -0.08. This is less than -1, which means that demand is inelastic.

Cary Increases the Price of Her Cakes from $8 to $10