Question

Yesterday, the price of gloves was $4 a box, and Reena was willing to buy 10 boxes. Today, the price has gone up to $6 a box, and Reena is now willing to buy 8 boxes. Is Reena's demand for gloves elastic or inelastic? What is Reena's price elasticity of demand?

Answer 1

The PED is -0.4 and the demand for Reena's gloves is inelastic.

Step-by-step explanation:

The price elasticity of demand(PED) measures the responsiveness of demand to changes in price of the product. If the PED is more than 1 than the demand is said to be elastic while if it is less than 1 than demand is inelastic.

PED = % change in Quantity demanded / % change in Price

PED = [(8 - 10) / 10] / [(6 - 4) / 4]

PED = -0.4

The demand for Reena's gloves is inelastic as PED is less than 1. The minus sign represents that it is a normal good.