Figure 5.3. The figure shows the wage rate and the quantity of labor supplied in an unskilled labor market.
-If a 10 percent increase in the price of gasoline results in a 2 percent decrease in the quantity demanded of gasoline, then the elasticity of demand for gasoline is:
A)equal to 0.2 and demand is inelastic.
B)equal to 0.2 and demand is elastic.
C)equal to 0.02 and demand is elastic.
D)equal to 0.5 and demand is inelastic.
E)equal to 0.5 and the demand is elastic.

Question

​Figure 5.3. The figure shows the wage rate and the quantity of labor supplied in an unskilled labor market. 
-If a 10 percent increase in the price of gasoline results in a 2 percent decrease in the quantity demanded of gasoline, then the elasticity of demand for gasoline is:
A)equal to 0.2 and demand is inelastic. 
B)equal to 0.2 and demand is elastic. 
C)equal to 0.02 and demand is elastic. 
D)equal to 0.5 and demand is inelastic. 
E)equal to 0.5 and the demand is elastic.

Quizplus · Accepted Answer

The elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price, which gives 2% / 10% = 0.2. Since the value is less than 1, demand is inelastic.

​Figure 53

Figure 53