When the price increases by 30% and the quantity demanded drops by 30%, the price elasticity of demand is:
A) perfectly inelastic
B) inelastic.
C) unitary elastic.
D) elastic.
E) perfectly inelastic.

Question

When the price increases by 30% and the quantity demanded drops by 30%, the price elasticity of demand is:
A) perfectly inelastic 
B) inelastic.
C) unitary elastic.
D) elastic.
E) perfectly inelastic.

Quizplus · Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
In this scenario, the price increases by 30% and the quantity demanded drops by 30%. To find the price elasticity of demand, we use the following formula:
Price Elasticity of Demand (PED) = (% Change in Quantity Demanded) / (% Change in Price)
PED = (-30%) / (30%) = -1
The negative sign indicates that the relationship between price and quantity demanded is inverse, which is always the case for the price elasticity of demand. However, when discussing elasticity, we often refer to the absolute value.
In this case, the absolute value of the price elasticity of demand is 1, which means that the percentage change in quantity demanded is exactly the same as the percentage change in price. This is known as unitary elasticity.
Therefore, the correct answer is:
C) unitary elastic.

When the Price Increases by 30% and the Quantity Demanded