Final answer:
The question asks about the elasticity of demand for hand calculators when the price drops and the quantity demanded increases. By calculating the price elasticity of demand, which is 2.5 in this case, it's clear that the demand is elastic, meaning the quantity demanded changed by a larger percentage than the price. Option c is the correct answer.
Step-by-step explanation:
Understanding the concept of price elasticity of demand is essential in economics. It measures how the quantity demanded of a good responds to a change in price. If the price of hand calculators falls from $10 to $9, a decrease of 10%, and the quantity demanded increases from 100 to 125, an increase of 25%, we can use the given information to calculate the elasticity.
To calculate the price elasticity of demand, we need to use the formula:
Price Elasticity of Demand = (Percentage change in quantity demanded) / (Percentage change in price)
In this case, Price Elasticity of Demand = (25% / 10%) which equals 2.5. As this number is greater than 1, it indicates that the demand for hand calculators is elastic. This means that the quantity demanded changes by a greater percentage than the change in price.
Therefore, based on the calculations, the correct answer to the student's question is that the demand is elastic (option c).