Question

Neil's elasticity of demand for hot dogs is 0.9. If he buys 4 hot dogs at $1.50 each, how many will he buy when the price is $1.00 per hot dog?

a) 3

b) 4

c) 5

d) 6

Answer 1

Answer: Neil will buy approximately 3 hot dogs when the price is $1.00 per hot dog. So, the correct answer is a) 3.

Answer 2

Neil will buy 5 hot dogs when the price decreases to $1.00, given his demand elasticity of 0.9. We calculate the percentage change in quantity demanded by applying the elasticity to the percentage change in price, which tells us he will buy 1 additional hot dog, rounding to the nearest whole number.

Step-by-step explanation:

Now let's calculate the percentage change in price. The price decreases from $1.50 to $1.00, which is a $0.50 decrease. To find the percentage decrease, we use the formula:

Percentage Change in Price = (Change in Price / Original Price) * 100%

Percentage Change in Price = ($0.50 / $1.50) * 100% = 33.33%

Since the demand is inelastic (elasticity of 0.9), the quantity demanded won't increase as much as the price decreases. So we calculate the percentage change in quantity demanded using the elasticity:

Percentage Change in Quantity Demanded = Elasticity * Percentage Change in Price

Percentage Change in Quantity Demanded = 0.9 * 33.33% = 29.997%

Since Neil initially buys 4 hot dogs, an increase of nearly 30% implies he would now buy:

Additional hot dogs = 4 * 30% = 1.2 hot dogs

Since we cannot buy a fraction of a hot dog, we will round down to the nearest whole number, which means Neil would buy 1 additional hot dog, making the total 5 hot dogs when the price is $1.00.