The state of Texas recently saw a gasoline price increase of 5%, which brought about a fall in the quantity of gasoline purchased of 1%. The price elasticity of demand is equal to _____, and demand is described as _____.
A)0.2; inelastic
B)5; inelastic
C)0.2; elastic
D)5; 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 -1%/5% = -0.2. The negative sign is often ignored in this context, making it 0.2. Because the absolute value of the elasticity is less than 1, demand is considered inelastic.

The State of Texas Recently Saw a Gasoline Price Increase