Question

Suppose that when the price for Good A increases by 7 percent, the quantity demanded for that product decreases by 2 percent. Accordingly, calculate the own price elasticity of demand for Good A. Is demand for Good A elastic, inelastic, or unit elastic

Answer 1

The own price elasticity is 0.28.

The demand for good a is inelastic.

Step-by-step explanation:

The price elasticity of demand for a product is the change in the quantity demanded of a product due to a change in its price.

When the price of good A increases by 7% the quantity demanded of that product decreases by 2%.

The own price elasticity of demand

=
`(change\ in\ quantity\ demanded)/(change\ in\ price)`

=
`(2)/(7)`

= 0.28

The elasticity of demand is less than 1, this implies that demand is inelastic.

A greater change in price is leading to a smaller change in quantity demanded.