Larissa is a famous courtroom attorney. She charges clients $300 per hour for her legal services. Last year she earned $450,000. This year, she raised her price to $350 per hour and her income increased to $490,000. Which of the following is most likely to represent the price elasticity of demand for Larissa's legal services?

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. From the given information, Larissa's price increased from $300 to $350, which is a 16.67% increase (($350-$300)/$300). Her income increased from $450,000 to $490,000, which is an 8.89% increase (($490,000-$450,000)/$450,000). Assuming her income increase is solely due to the price increase (with no change in hours worked), the elasticity of demand would be the percentage change in quantity (which is inversely related to the income change due to the price increase) over the percentage change in price, giving a value less than 1, indicating inelastic demand. Among the provided options, 0.45 is the only value that reflects inelastic demand and fits the described scenario.

Larissa Is a Famous Courtroom Attorney