When the price of a pound of oranges is $1.00, 7500 pounds of oranges are demanded. When the price of a pound of oranges decreases to $0.80, 10,000 pounds of oranges are demanded. In this price range the demand for oranges is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.

Question

Quizplus · Accepted Answer

When the price of oranges decreases from $1.00 to $0.80, the percentage change in price is -20% (decrease) and the percentage change in quantity demanded is +33.33% (increase). We can use the formula for price elasticity of demand:

% change in quantity demanded / % change in price

= 33.33% / -20%

= -1.67

Since the price elasticity of demand is greater than 1, we know that demand is elastic in this price range. A small change in price results in a relatively larger change in quantity demanded.

When the Price of a Pound of Oranges Is $1