If the price of hairbrushes decreases by 20 percent,the quantity demanded increases by 2 percent.the price elasticity of demand is:
A)0.1,and is elastic.
B)10 and is elastic.
C)0.1 and is inelastic.
D)10 and is inelastic.

Question

Quizplus · Accepted Answer

To calculate the price elasticity of demand we use the formula: (% change in quantity demanded) / (% change in price).

Substituting the given values, we get:

Price elasticity of demand = (2% / -20%) = -0.1

Since the value obtained is negative, we know that hairbrushes are an inferior good (i.e. demand decreases as income increases).

Also, since the absolute value of the price elasticity of demand is less than 1 (-0.1 < 1), we can say that the demand for hairbrushes is inelastic (i.e. the percentage change in quantity demanded is less than the percentage change in price).

Therefore, the correct answer is C: 0.1 and is inelastic.

If the Price of Hairbrushes Decreases by 20 Percent,the Quantity