Question:
Suppose that when the price of water rises by 30 percent, the quantity demanded falls by 10 percent. The price elasticity of demand for water is ____________, making water an _______________ good
a. 0.33; inelastic
b. 3.0; elastic
c. 1.0; unit elastic
d. 0.33; elastic
Answer:
The correct Answer is A) 0.33; Inelastic.
Step-by-step explanation:
In economics, elasticity is the measurement of the proportional change of an economic variable in response to a change in another. It shows how easy it is for the supplier and consumer to alter their behaviour and substitute another good, the strength of an incentive over choices per the relative opportunity cost.
Elasticity is calculated by:
Percentage change in the quantity/ Percentage change in price
= 10/30
=0.33
There fore the good is an inelastic good.
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