Question

A 20 percent increase in the price of flour reduces flour consumption by about 10 percent. Such a price increase causes households to Group of answer choices spend less on flour. spend more on flour. spend the same amount on flour as before. consume more goods like salt and baking powder, which are flour complements.

Answer 1

spend more on flour.

Step-by-step explanation:

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

Price elasticity of demand = percentage change in quantity demanded / percentage change in price

10 / 20 = 0.5

Demand is inelastic

Demand is inelastic if a small change in price has little or no effect on quantity demanded. The absolute value of elasticity would be less than one.

Consumers would spend more on flour due to the increase in price and the fact that demand is inelastic.

Other types of price elasticity of demand are :

If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes.

Demand is unit elastic if a small change in price has an equal and proportionate effect on quantity demanded.

Infinitely elastic demand is perfectly elastic demand. Demand falls to zero when price increases

Perfectly inelastic demand is demand where there is no change in the quantity demanded regardless of changes in price.