The state of Massachusetts recently saw an increase in the price of electricity of 10%, which brought about a fall in the quantity of electricity consumed by 2%. 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. Here, it is -2% / 10% = -0.2 (ignoring the negative sign, as elasticity is usually considered in absolute terms). A value of less than 1 indicates inelastic demand, meaning the quantity demanded is relatively unresponsive to price changes.

The State of Massachusetts Recently Saw an Increase in the Price