Question

If the percentage change in the quantity demanded of a good is greater than the percentage change in the price of the good, then how is the demand for the good characterized?

Answer 1

The demand is price elastic in nature because it is greater than 1.

Step-by-step explanation:

Price Elasticity of demand refers to the response of quantity demanded of a good to the change in price. Of course, when the price decreases, quantity demanded of a good increases and vice-versa but to how much degree is determined by the Price Elasticity of demand.

Mathematically, Price Elasticity of Demand is the ratio of % change in quantity demanded of a good and % change in the price of a good i.e.

Price Elasticity of Demand = % change in quantity demanded of a good / % change in the price of a good

In the problem, since the percentage change in the quantity demanded of a good is greater than the percentage change in the price of the good, the above ratio will be greater than 1. Hence, the demand of the good is price elastic.

Answer 2

Price Elastic

Step-by-step explanation:

We know that

The formula to compute the price elasticity of demand is shown below:

= (Percentage change in quantity demanded) ÷ (percentage change in price)

The classification as follows

1. Perfectly inelastic = If zero

2. Inelastic = When elasticity is below than one

3. Unitary elastic = When elasticity is equal to one

4. Elastic = When elasticity is exceeded than one

5. Perfectly elastic = When elasticity is in infinity

Since the percentage change in the quantity demanded of a good is greater than the percentage change in the price of the good which reflects that the elasticity is more than one