Question

If the number of ice cream bars demanded increases from 19 to 21 when the price decreases from 1.50 to 0.50, the price elasticity of demand is:

1) -5
2) -0.2
3) -0.1

Answer 1

The price elasticity of demand in this scenario when the quantity of ice cream bars demanded increases from 19 to 21 and the price decreases from $1.50 to $0.50 is roughly 0.16, indicating that demand is inelastic since the value is less than one.

Step-by-step explanation:

The student asked how to calculate the price elasticity of demand when the number of ice cream bars demanded increases from 19 to 21 as the price decreases from $1.50 to $0.50. The formula to calculate the price elasticity of demand is:

(Percentage Change in Quantity Demanded) / (Percentage Change in Price)

First, we calculate the percentage change in quantity demanded:

((21 - 19) / 19) * 100 = (2 / 19) * 100 ≈ 10.53%

Next, we calculate the percentage change in price:

((0.50 - 1.50) / 1.50) * 100 = (-1 / 1.50) * 100 ≈ -66.67%

Now, we place these values into the elasticity formula:

(10.53% / -66.67%) ≈ -0.158 ≈ -0.16 (rounded to two decimal places)

The negative sign indicates the inverse relationship between price and quantity demanded, but we usually discuss elasticity in absolute terms, hence the answer is approximately 0.16. It shows that the demand is relatively inelastic because the elasticity is less than one.