If the price of hand calculators falls from $10 to $9 and,as a result,the quantity demanded increases from 100 to 125,then:
A) demand is elastic.
B) demand is inelastic.
C) demand is of unit elasticity.
D) not enough information is given to make a statement about elasticity.

Question

Quizplus · Accepted Answer

The price elasticity of demand can be calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the percentage change in quantity demanded is (125-100)/100 = 0.25 or 25%, and the percentage change in price is (9-10)/10 = -0.1 or -10%. Therefore, the elasticity of demand is 25/-10 = -2.5, which is greater than 1. This means that the demand is elastic, i.e., a small decrease in price leads to a relatively larger increase in quantity demanded.

If the Price of Hand Calculators Falls from $10 to $9