If the price of electricity falls by 10% per kilowatt hour, and the quantity demanded of electricity subsequently increases by 8%, the price elasticity of demand for electricity is _____, and it would be classified as _____.
A) 0.8; inelastic
B) 0.8; elastic
C) 1.25; inelastic
D) 1.25; 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, which is 8% / 10% = 0.8. A value of less than 1 indicates inelastic demand, meaning the quantity demanded is relatively unresponsive to price changes.

If the Price of Electricity Falls by 10% Per Kilowatt