Final answer:
The price elasticity of demand is calculated as the absolute value of the percentage change in quantity demanded (-15%) divided by the percentage change in price (10%), resulting in an elasticity of 1.5. This indicates that the product has an elastic demand, meaning quantity demanded is highly sensitive to price changes.
Step-by-step explanation:
When the price of a product is increased by 10 percent and the quantity demanded decreases by 15 percent, the price elasticity of demand is calculated by finding the percentage change in quantity demanded divided by the percentage change in price. In this case, the elasticity is -1.5 (15% decrease in quantity demanded / 10% increase in price). The negative sign indicates the inverse relationship between price and quantity demanded, which is a characteristic of the demand curve. However, for elasticity, we normally look at the absolute value.
The price elasticity of demand is elastic in this scenario because the absolute value of the elasticity (-1.5) is greater than one, demonstrating that the quantity demanded is quite sensitive to price changes; a decrease in demand is greater than the proportional increase in price. This contrasts with an inelastic demand scenario, where a percentage change in price results in a smaller percentage change in the quantity demand.